Rumors Drag Down Markets Going Into Weekend

September 9, 2016 - 5:15pm

 by Gary Wagner

The old adage “buy on the rumor, sell on the fact” was turned on its ear today as rumors fueled the tanking of gold and silver; equities in the U.S. and Europe; and crude oil.

Lael Brainard, who is a Federal Reserve governor (a non-rotating position) is going to speak on Monday in Chicago. Brainard is one of the very quiet, deeply intellectual and deeply influential members of the FOMC, which will meet in eleven days.

Brainard is also a steadfast dove when it comes to rates. The jitters the mere announcement of her speech caused rest on the fear that she may say something that could be interpreted as vaguely hawkish. We do know that Brainard has referred to hopes that the Fed could normalize monetary policy (whatever that might mean). To us, "normalized" means keeping rates in line with what the Fed’s goals are and what data dictates. Nevertheless, we interpreted her remarks regarding normalization as generic rather than targeted.

What she might say on Monday is anyone’s guess, but we believe she will not say anything unsettling. Here’s why. Monday is the last day before the Federal Reserve’s statement blackout period that leads up to an FOMC meeting. Brainard, who is a champion of cheap money when necessary, is very sober and low-key.

It’s hard to believe she would rattle the markets for a full seven business days during which no one from the Fed could repudiate or expand upon her remarks.

Be that as it may, we are left with the rubble from the rumor bomb.

The U.S. dollar rose on the Brainard rumor, but it also strengthened because of another nuclear test by North Korea, which rattled world markets.

The stronger dollar weighed on gold and silver, accounting for a bit more than half of the drop in gold but only a small portion of silver’s 2.60% fall. (Regular trading in silver pushed it down 2.25% on its own.)

The Dow Jones Industrial Average had fallen more than 3.00% at one point but has since come off those lows and is looking to close off 2.00% or thereabouts. The big drop came immediately after the Brainard announcement. The S&P 500 and NADAQ were off about 2.50% each.

Oil, which had risen precipitously yesterday, fell just as quickly and steeply today. West Texas Intermediate was down 3.65% and Brent North Sea was down 4.20%. 

While general market uncertainty stung crude, it seems the rise of seven more rigs in the U.S. count was a more important price driver. U.S. producers may be ready to throw themselves upon the burning pyre of selling at rock bottom prices.

"When a market is quiet, it's susceptible to rumors, whether we're talking about a path to freeze oil production or whether the Fed is going to raise rates in September," said Quincy Krosby, market strategist at Prudential Financial. "This may be a market that has too much time on its hands right now."

Reacting to this uncertainty, the VIX shot up 40% to 17.50, which is the trading equivalent of putting on a fright wig and running through town with a torch in hand.

Interestingly enough, the CME FedWatch probability scale for a September rate hike stayed calm, moving up to 24% from 18%. (Although it has been testing 24% recently on almost a daily basis.)

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action
Last Friday, just following the release of this month's jobs report data, we sent out a trade recommendation to enter long positions in both gold and silver.
 
Today our stops were hit, resulting in a small profit on both of our trades. We enter the weekend flat with no active trades.
 
We went long gold at 1328 (Dec comex), we covered at 1336 for an $8.00 profit ($800 per contract)
We went long silver at 19.17 (Comex),  we covered at 19.35 for an .18 cent profit ($900 per contract)
Gold Market Forecast

There is no doubt that this is been a most interesting week in the precious metals markets.

On this shortened trading week we saw gold gain $27 on Tuesday – the first trading day of the week – only to watch that net gain slowly erode over the next three trading days.

Today's lower close took gold down approximately $8 on the day, the net result was a 50% retracement of price from the most recent rally in gold.

On today's video report we will cover our most recent trade in which we took a small profit, but more importantly we will discuss key levels of potential support in gold and silver.

Trending Markets Forecast

As we said in our opening statement of our daily letter "buy on rumor, sell on fact" obviously resonates today. 

US equities traded quietly throughout the week, with fractional gains as well as fractional losses, the net result being not much movement in the market.

Of course, that was up until today's trading activity in which US equities lost roughly 2% on the day.

The Dow Jones industrial average closed off almost 400 points on the day, and the real question is what will we see these markets do Monday morning.

On today's video report we will look at key levels of potential support in US equities in attempts to ascertain what we might see next week.