The carnage in the gold and silver market is incredible. Spot gold in having its worst selloff since 1983. Silver’s plunge is the worst since “the late 1960s” if not on record according to Bloomberg.
The accepted catalyst was a rebound in the dollar and the planned nomination of Kevin Warsh as FOMC Chairman.
The dollar’s advance undercut precious metals sentiment after the President indicated a willingness for the currency to weaken.
Most veteran commodity traders would state the above reasons should not have caused a 32% and 10% decline in silver and gold, instead they were focusing upon the unknown use of leverage, technology-based trading and lack of liquidity. Bit Coin experienced a similar rout during an early October weekend when the cyber currency plunged about 30%.
Changing topics, the yield curve steepened considerably Friday as shorter dated Treasuries rallied and longer dated sold off. Some have questioned as to why given that Warsh is not as dovish as other FRB Chair candidates. Moreover, the dollar advanced which is technically bullish for longer dated Treasuries.
Is the selloff the result of Warsh’s “disdain” for big balance sheets which is currently around $6.6 trillion? The Treasury has announced it will purchase about $40 billion a month in short-dated Treasuries which according to Bloomberg is the more than the entire annual issuance scheduled this year. Short-dated Treasuries would comprise about 25% of the country’s debt, considerably higher than the 18% -20% range recommended.
It is widely acknowledged liquidity is tight in the financial system so if the Warsh Fed is to shrink the balance sheet it would do so by selling or not purchasing long-dated Treasuries.
The steepening of the curve was also abetted by the higher-than-expected PPI for December.
The market is still suggesting two interest rate cuts by year’s end, the first occurring perhaps in July.
Equities ended lower as the NASDAQ was down about 1.0% and the Dow 0.35%.
What will happen this week as earnings season is in full swing and the economic calendar is comprised of many tier I statistics.
The economic calendar is comprised of many top tier statistics including the JOLTS Job Openings, the ISM Manufacturing and Services Indices, the ADP Private sector employment survey, the BLS Labor report and a sentiment indicator.
Last night the foreign markets were mixed. London was up 0.52%, Paris up 0.51% and Frankfurt up 0.78%. China was down 2.48%, Japan down 1.25%, and Hang Seng down 2.23%
Dow and NASDAQ futures are down 0.25% and 0.75% respectively as Bitcoin fell to around $77,000 over the weekend. There are some cracks being exposed to the AI narrative. Gold and silver appear to have steadied. Earnings season accelerates as over 100 S & P 500 companies post results this week including AMZN and GOOG.
The 10-year is up 1/32 to yield 4.23%. The yield is essentially unchanged after Friday’s significant steepening.
