The Fed giveth and the bullion banks taketh away…
Precious metal expert Michael Ballanger breaks down the gold price roller coaster surrounding the Fed's decision not to raise interest rates.
Janet Yellen just blew all remaining semblances of credibility believed to be still present at the U.S. Federal Reserve Board.
We have all heard for the past month or so that the Fed was going to hike the Fed Funds rate at today's meeting, the anticipation of which caused a rally in the U.S. Dollar (USD) and a surge in stocks—all while the bond market was rallying in response to weakness in the macroeconomic environment.
Well, they didn't raise as predicted back in March because of "China weakness," so today they didn't hike because of "soft exports" and "vulnerabilities in the global economy" and "Brexit worries" and a host of other totally clueless hypothecations. But the bottom line is that they didn't hike because the ensuing dollar rally would impair the collateral that underpins the massive debts owed by governments and homeowners to the banks that hold that debt. Stocks reversed lower when it became clear that the Fed has absolutely zero control over the U.S. economy, and is now truly caught in the headlights because banks are getting killed with the yield curve this "flat," and since the Fed's shareholders ARE "the banks," it takes on an aura of the surreal.
As long as I have been writing about markets (and that dates back to 1987), I have never EVER had any respect for the banking industry. To think that in Canada, when you get your paycheck and after your employer has deducted taxes and benefits from it, you cannot get paid with cash. In my first job as a golf pro shop attendant ("club cleaner") in the 1960s, the club pro handed out little banker envelopes with cold, crisp bills inside. After stashing the bills in my jeans, I would take them home and stuff them in a Jumbo peanut butter jar until I had enough bills to open a bank account. Then I would go down to the bank with the Jumbo jar in a canvas sack and present it to the nicest teller I could find and she would count it out carefully; give me my receipt; and update my bankbook. If I wanted to empty the entire account to buy a new pair of hockey skates or a new lacrosse stick from the Oneida First Nations (who made the BEST lacrosse sticks in the world), I could do so and still leave the account open AND get a smile from the teller.
Today, try to get cash from your employer. Secondly, try to put cash into a bank these days. Third, try to get cash OUT of a bank (over $5,000) without signing a form that tells the government where you are going to spend YOUR money. When they decide to eliminate cash transactions and go totally electronic, not only will they be able to trace your movements, they will be able to see what you buy, and when and where you buy it.
The freedoms lost during the last fifty years are going to only accelerate as the Dynamic Duo of Babbling Bankers and Panicking Politicians move to protect their unwarranted and fully undeserved positions of power ("POPs") by attempting to confiscate the earnings of citizens through taxation, and the savings of citizens through bail-ins, and the assets of citizens through some form of expropriation in the guise of an "Emergency Measures Act." Welcome to the world of the "New Normal" and 24-hour government surveillance.
When Janet Yellen started answering questions today, I suddenly had another Eureka moment, which have been coming with alarming regularity as the years on my birth certificate begin to pile up. That moment is the point in the interview or the chapter in the book where I call "Bullshit," and have to come to the realization that these deified morons called "central bank governors" are actually no smarter than my local barber, who has been a real estate investor for the past forty years and is now wealthy beyond belief.
Ayn Rand referred to these people as "looters," and that is truly where the consortium of elected politicians and unelected elitist interests reside; bankers pay for political campaigns and politicians are then indentured to the banks. Entire U.S. industries have been laid to waste in the interest of globalization all for the benefit of the looters as they move manufacturing jobs to Mexico and China in order to meet their minimum ROI and bonus benchmark. Criminal.
The junior miners ETF (GDXJ), which I own fully-hedged with July $35 and July $40 puts and with a sub-$19 adjusted cost base from last year, has now broken out along with gold to new high ground above $42, with gold trading up through the prior high of $1,306 on May 2. (See the chart above.) If you are a follower and proponent of classic technical analysis (which I am definitely NOT), you are now piling into the gold market because it has broken out to a new recovery high.
The problem with that as an "actionable strategy" is that such a trade set-up is EXACTLY how the bullion banks trap the public and the Large Specs, during which time they issue unlimited amounts of paper gold shorts to meet the demand. Then they pull the ripcord and take it back down.
To illustrate this point we have to go to Gold Anti-Trust Action Committee cofounder Chris Powell's famous line that reverberates around the walls of my consciousness on a daily basis: "The are no free markets anymore; there are only interventions." Yesterday, after the Federal Open Market Committee (FOMC) results were out, a CNBC economic analyst and Grade A snapperhead opined that "The market's won. The Fed has completely capitulated to the market's point of view. The Fed is not leading the markets here; the markets are leading the Fed. Every single time." Notwithstanding that many, if not all, of us who have spent more than five years trading markets have known full well that the Central Banks were going to lose control.
So when Rick Santelli responded to Steve Liesman's rant with, "There is no market left. There is Janet; there's Mario Draghi; there is Abe. THERE IS NO MARKET LEFT," there were all reading from the GATA playbook by essentially paraphrasing what Chris wrote in what feels like years ago.
Back to the $1,306 breakout, for reasons mentioned above, I find it exceedingly difficult to jump up and down while "Buying the BREAKOUT," with such a litany of gold market interventions having nipped such breakouts in the bud in the past. Of course, this time could be different and seasonality could fail, leading to an early test of the long-term downtrend line at $1,450, with the NYSE.Arca Gold BUGS Index (HUI) and the TSX Venture moving sharply higher. "Stay long the GDXJ but remain fully-hedged" is the order of the day, because while it certainly could be "different this time," the odds favor it NOT being "different this time." If I'm wrong, all I lose is the cost of the hedge and NOT my core positions.
As I close out today's missive, I notice that it is 1 p.m., and as we have 25 minutes left in the Crimex session, the Cretins have been successful in sucking the technical traders in between $1,308 and $1,318, and have now lowered the boom on them. The "but it's different this time" crowd is all in shock, working the calculators feverishly to see what their margin call is going to be. But today's reversal is a critical one, because if we take out $1,287 in the Access Market hours, the technical signal will be egregiously bad. Failed breakout with a double top and an outside reversal to the downside? Uglier than a one-eyed orangutan on steroids.
2:10 p.m. EST and the last trade for August Gold is $1,289.35. . .ugly.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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Source: Michael J. Ballanger
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All charts courtesy of Michael Ballanger
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