If you fell behind the coronavirus (Covid-19) black swan curve, I am keeping four Twitter threads alive that originate from articles I recently penned to include updated information on its global spread, the potential and realized impacts on the domestic and global economy, a juxtaposition on the 1918 Spanish flu, and the Fed’s ongoing response after the music stopped.
“Any hint that the coronavirus is reaching epidemic proportions on U.S. soil will likely force the Fed’s hand to pursue more aggressive REPO operations and/or quantitative easing (QE), which could push real interest rates below zero and possibly deter foreign capital inflows that help prop up the stock market and sovereign debt. What may offset any decrease in purchases of our debt is domestic safe-haven demand. The fear factor associated with coronavirus running wild on U.S. soil would negatively influence consumer spending, and that is the last leg holding up the economy” – TraderStef, Feb. 16
Since Dec. 2019, I provided extensive analyses on gold and silver through articles and interviews that laid out the case of why a $1,620 to $1,697 air gap existed in gold, which was fair game if the recent $1,611 high was breached without hesitation. I also mentioned that volatility in stock market indices was a near-term bearish threat.
“My expectation for the price action going forward with the Dow and S&P is more bearish than noted on Jan. 15 with further losses on the table. There will be bouts of extreme volatility. Both indices are ripe for downside Scalping opportunities by seasoned traders. This is a good time for passive investors to have a money-market account in place and transfer the most vulnerable portion of a portfolio into cash, which will conserve capital gains while waiting for the correction to probe a bottom.” – TraderStef, Jan. 31
The sudden and overbought sweet spot momo play opportunity in gold is now water under the bridge after the COVID-19 pandemic news reached peak fear, as the stock market music stopped playing around Feb. 13. All sectors of finance and industry suffered from the tremendous plunge in the markets this past week and precious metals were no exception. In “A Deep Impact is Blunting Silver’s Upside Potential,” published on Feb. 27, I noted several reasons for the swoon in silver and those factors apply to gold as well. Base metals (commodities) were taking a hit on expectations of a global economic slowdown due in part to nearly all of China in lockdown, profit-taking in gold to meet cash requirements for margin calls in the financial markets, and book squaring for end-of-month futures and options expiration and settlements all coalesced within one week for a perfect storm.
By the last day of February, fund managers finished locking in gains to boost monthly performance figures, additional selling in markets forced margin calls in many asset classes, automated trading platforms with high-frequency trading algorithms accelerated the efficient scalping of equities, and artificial intelligence with machine-learning robots established a new vocabulary from headlines full of pandemic semantics. That was a mouthful and welcome to the machine.
“All artificial intelligence trends towards psychopathy when optimized” – prove me wrong! – Martin Geddes
“Wall Street faces a day of reckoning with coronavirus. No one believes China data. Yet, the market has been encouraged by positive trends in the same data. Which is it? Meanwhile, firm data from Korea, Japan, Iran & Italy shows the virus is out of control.” – Jim Rickards, Feb. 23
Gold ends lower, gives back big chunk of flight-to-safety gains… “Backing gold has paid handsomely so far in 2020… but if coronavirus really does start to suck oxygen out of the markets day after day, this is where it gets tough to sit tight in gold as longer-term hedge, because hedge funds facing margin calls on other trades will liquidate what’s winning too.” – MarketWatch, Feb. 25
To view a larger version of the following charts, right-click on it and choose your “view image” option.
Stock Rout Is Now So Severe Even Gold Hurts as Margin Calls Seen… “While bullion has rallied amid both risk-on and risk-off episodes, it could suffer from further profit-taking as it’s used to meet the calls amid the sharp declines in stocks, precious metals analyst Suki Cooper said in a note. Still, barring near-term profit-taking, risks for prices remain to the upside amid expectations that the Federal Reserve will cut interest rates twice this year.” – Bloomberg, Feb. 27 at 11:08pm EST
“Everybody is cancelling everything–flights, meetings, conferences, etc. Nobody wants to be the chump that held the meeting of death. Global economy and supply chains are breaking down at breathtaking speeds (IMO).” – David B. Collum, Feb. 28
Let us move onto the end-of-month technical analysis on gold.
Goldman Sees Gold Hitting $1,800 as ‘Haven of Last Resort’ – Bloomberg, Feb. 26
WGC: If outbreak continues there’ll be a sustained impact on gold price – CNBC, Feb.27
“The seasonality pattern for gold to rise has coincided with numerous geopolitical events and the coronavirus outbreak. Gold is currently in a spot where it typically makes a run before early spring doldrums take hold. The window of opportunity remains open as gold is approaching an important resistance level just shy of its January $1,611 high.” – TraderStef, Feb. 16
Gold hourly chart as of Feb. 21, 2020 at 7:45am EST…
Gold monthly chart as of Feb. 28, 2020 close…
Excerpt from the Jan. 27 weekly chart analysis:
“The $1,620 and $1,697 laterals originate from the choppy price action between the $1,920 high in 2011 and downside breach of $1,522 in 2013… The price is stable at $1,580 and the chart remains bullish with an intact uptrend. All moving averages are lined up under the price action, as the Golden Cross has done its job since Feb. 2019 and shows no sign of reverting… I remain bullish long-term but cautious in the near-term until the $1,611 high on the Plunger Candle (aka Shooting Star) is taken out with conviction.”
Excerpt from the Feb. 5 daily chart analysis:
“It was only a couple of days prior to the coronavirus creeping into mainstream media headlines that I appeared on Dr. Dave Janda’s Operation Freedom live radio broadcast and suggested that there would be additional chops in gold’s price action before $1,611 is revisited. The $1,586 Fibonacci level has turned out to be a substantial resistance area… From a big picture point of view, it appears that a Measured Move Up is taking shape that originates from the May 2019 low.”
Excerpt from the Feb. 14 daily chart analysis:
“Since the high in January at $1,611, the price action consolidated and morphed into a Symmetrical Triangle… potential exists for a visit to the next bus stop at $1,620… the price is holding steady just shy of the $1,586 Fibonacci level… coronavirus reports and fear could trump any economic data that is perceived as bullish for the stock market. All of the moving averages remain below the price action, the DMI-ADX is trending positive with a potential Alligator Tongue setup taking shape, and the StochRSI has begun trending upward… I remain cautious near-term until $1,611 is breached without hesitation.”
Gold’s primary bull (accumulation phase vs. secular bull) liftoff in 2016 remains intact and is having healthy bouts of consolidation and bullish chart patterns along the way. The Feb. 2020 high of $1,689, a low of $1,548, and a close of $1,586 right on a Fibonacci level printed a Long Legged Doji candle that is indicative of a bullish continuation 51% of the time (aka indecision that can be full of speculative error if emotions get in the way). We cannot conclude that there is a bearish three-candle Evening Doji Star pattern because March does not exist yet. When considering the daily and weekly chart closes, the most likely scenario will be a period of chop and consolidation as gold is fast approaching the doldrums of early spring due to seasonality patterns.
All of the moving averages are lined-up below the price action that is squarely within an Up Channel. The DMI-ADX is in bullish Alligator Tongue mode with a rising trend, the StochRSI is flat but remains in positive territory, the Momentum and Money Flow have flattened out and remain in an uptrend, and Volume patterns since mid-2017 continue to print lower trending Volume on price pullbacks and higher trending Volume on a rising price. The monthly chart is bullish and near-term price action will chop and consolidate for a while unless the Fed or other news worthy event influences the market.
Ex-Fed Gov Warsh sees coordinated global central bank action soon in response to coronavirus – CNBC, Feb. 28
For the savvy precious metal investor that encounters talking points about safe-haven status gold, here are a few statistics to consider. Since Jan. 2000, gold is up 461% vs. the S&P 500 at 111%. As the coronavirus pandemic evolved in late Feb. 2020, bitcoin has fallen 20% and gold suffered a 6-7% throwback. Following bitcoin’s all-time high in 2017, it is down 60% and in a bear market, while gold is 18% below its 2011 all-time high and is in a primary bull market since 2016.
Welcome to the Machine – Pink Floyd (1975)
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