China Fever, Oil Swoon, Gold Finds Traction, Equities Upset

August 11, 2015 - 4:56pm

 by Gary Wagner

Whom Fortune wishes to destroy she first makes mad.

No doubt everyone one is familiar with today’s yuan devaluation by China, the one big inescapable driver in all markets – except in Shanghai equities.

The move has been described as everything from a strategic chess move to a sign of weakness, from a slow-moving train wreck to the makings of apolitical revolution. Some commentators went even further.

"I think it's screaming that China is in trouble. The Chinese leadership is really starting to run scared," said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, referring to a crackdown on corruption in the world’s second largest economy that has paralyzed bureaucrats fearful of having the central committee point fingers at them.

Regardless of how we describe it verbally, we can quantify the effects of the devaluation, not because the devaluation itself is important but because it indeed signals China’s soft growth and spotlights the deceit behind much of the data that flows from the country.

Although in general gold has found a new life recently, certainly the currency move in China helped it along. Gold is up a modest one-third of a point in late afternoon trading.

West Texas Intermediate crude is down over 4% today, plunging toward the $43 per barrel support level that, if broken, could lead the American benchmark into the 30s. WTI is at a six-year low. Brent North Sea is now firmly entrenched at roughly the $49 per barrel level.

Asia’s equities markets were down modestly on the yuan fiasco, the Nikkei faring worst. The DAX was hurt the most in Europe – and the world – reflecting German exposure to Chinese financial instruments.

The Dow is down 1.25% as of 3:30 in New York, but has come off its highs for the day. Much of the Dow tumble though is related to the energy volatility. On the NASDAQ, Apple fell over 4% on the China de-val, analysts expressing concern for Apple’s exposure in the Chinese market, which translates to worry that the purchase of iPhones in that country will tank.

All currencies that have strong ties to the yuan, meaning most of east and especially Southeast Asia, took hits today. Even the strong yen – the Swiss franc of the east – fell against the dollar. On the other hand, the dollar softened a little more against the euro.

For our purposes, the devaluation of the Chinese currency means the Federal Reserve must weigh one more factor as it continues to consider when an interest-rate hike will come.

Bond traders certainly see the yuan move as pushing the date of a hike back. The yield on the 10-year slipped below the 2.15% level.

We’re not willing today to make any fundamental predictions on the longer-term influence of the yuan’s decline. We’ll wait until it trades for a few days before reconnoitering and reporting.

We will point out that, as the epigraph above says, the Chinese central planners do seem a bit crazy. Will fortune – or the gods – destroy them? The first half of the old Roman adage is in place clearly.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

Yesterday we issued a trade alert to buy both gold and silver

Maintain long gold @ 1104.50 Maintain stop @ 1089 OCO sell at 1128 OB

Maintain long silver @ 15.26 Maintain stop @ 14.95

Gold Market Forecast

Many analysts are wondering if last night’s move by the Chinese banks to devalue their currency was “one and done” or simply the first salvo. As we have noted on many occasions the economic scenario in China is far from perfect, and the net outcome of these actions could certainly have a dramatic influence on gold prices.

On today’s video report we will look at both short-term as well as longer-term resistance areas as they relate to our current trade and current exit strategy. We have suggested a strategy of placing an OCO (one cancels the other) order connected to our current stop, and today’s report will detail why we are focusing on this particular price point as a potential exit strategy.

Of course, longer-term real resistance does not come into play until (if and when) gold prices can effectively trade above 1156. This being the key 61% retracement level from gold’s ascension from $700 to above $1900 per ounce.

If China continues to devalue their currency the net result could be an influx of capital into U.S. debt as well as gold as a safe haven vehicle

Trending Markets: Proper Action

Maintain long dollar @ 97.67 Maintain stop below 96.25

Maintain short Euro @ 109.15 Maintain stop above 111.00

Trending Markets Forecast

Crude oil prices once again traded under dramatic pressure today, actually trading below $43 per barrel on an intraday basis.

Although closing off the lows of the day the equities markets were dramatically affected by China’s most recent move. One real question servicing traders' minds is whether this recent activity could lengthen the time until “lift off," the raising of interest rates by the Federal Reserve.

Both the US dollar and euro traded nominally higher on the day, in essence unchanged, as traders digest the most recent moves made by the Chinese government