Pendulum Swings Against Gold, Toward Silver & Equities

As the United States strides back to equilibrium after fretting over the presidential elections, gold plunged another 1.65% today.

Silver rode the other way, rising a tidy 0.30% as apparent industrial demand helped to tweak it higher. Most of the base metals also rose, copper especially, which went 3.50% higher. It is at a 16-month high. Copper is the best proxy in the full metals complex for industrial demand. Aluminum, zinc and lead went nicely higher, although nickel sank.

A stronger U.S. dollar hurt gold and silver but the majority of action came from regular trading – whether to the good or to the bad.

The stronger dollar reflected the great strength in the financial sector of the equities markets. IBM, which has risen 10 points in the last three days, also contributed.

At one point, the Dow Jones Industrials were up 250 points. The Dow has since backed off and is up “only” 218 points. The S&P was up more modestly and the NASDAQ was down 0.80%.
"Equities are adjusting to change and uncertainty with a Trump presidency," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. "There still needs to be more clarity and that's going to impact equity prices."

The Nasdaq composite underperformed, briefly falling 2% as the iShares NASDAQ Biotech ETF more than halved gains while the so-called FANG stocks – Facebook, Amazon, Netflix and Alphabet (Google) – all fell. The index held around 0.3% lower at 2PM Eastern Time.

They are interest-rate sensitive because they are so capital intensive. And they could very well be too expensive relative to income, earnings and valuation.

"These are expensive stocks that don't like higher interest rates. These have been the leaders and the leaders are getting whacked," said Peter Boockvar, chief market analyst at The Lindsey Group. He said that FANG stocks "don't like higher interest rates because higher interest rates exposes things that are overvalued

Underscoring this, the U.S. 10-year bond yield rose to 2.14%. That also indicates that we are definitively in a risk-on atmosphere. There may be a lot of reasons for this. but we settle on this one: Wall Street is trying to make money ahead of an inevitable recession.

Once Fed rates start rising, they will continue for a while. That will squelch growth. Also, we are at the stage in the macrocycle to be able to anticipate a recession come hell or high water. Only a deft hand will be able to stave it off.

Right now there is a 78% chance of rates rising come December 15, according to the CME FedWatch probabilities. (That’s about the same chances the experts gave Hillary Clinton of winning the presidency.)

After having declined for a few days, the VIX rose 4.00%. What do they know at the CBOE and when did they know it?

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Wishing you as always, good trading,