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VIDEO — Brien Lundin: Gold Waiting for Fed Action, What Will the Trigger Be?

Shifts in Fed messaging tend to bring weakness in gold and silver prices, said Brien Lundin of Gold Newsletter. But that should change once the central…

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This article was originally published by Investing News Network

The long-term future for gold looks secure, but in the short term there’s more uncertainty for the yellow metal — that’s according to Brien Lundin, editor of Gold Newsletter.

Speaking to the Investing News Network, he said while investors can be fairly certain the gold price will be higher in two, three, four or five years, the weeks to come are harder to gauge.

Lundin, who also hosts the New Orleans Investment Conference, said the US Federal Reserve is in the midst of shifting its messaging, and in periods like this it’s typical to see weakness in gold and silver.

 

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“The good news is once we see some actual action in regard to Fed tightening, that typically marks a bottom in the gold price, and the silver price as well, because the speculators, having bought the rumor of Fed action, then sell the news,” he said. “That releases some of the selling pressure, some of the shorting pressure on the metals. So that typically marks a bottom.”

This scenario played out in December 2015, on the downslope of the Fed’s reaction to the last crash — Lundin explained that a significant bottom for metals at that time led to a six month rally.

He thinks that could happen again. “The question is what is going to be the trigger point — is it going to be actual rate hikes, which may not come until 2023? Or will it be tapering, which will probably be announced at some point over the next month or two and probably won’t start until early 2022?”

Clarifying his expectations, Lundin said he doesn’t expect to see a year-long period of gold price weakness in the lead-up to the first Fed rate hikes. “But I do think we’ll probably have two to four weeks right now as we still have some of this murkiness in terms of Fed messaging.”

Watch the interview above for more from Lundin on gold and silver, including unnoticed trends in the market, as well as his thoughts on the broader commodities space.

Don’t forget to follow us @INN_Resource for real-time updates! 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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Economics

First Weekly Outflow From Stocks In 2021

First Weekly Outflow From Stocks In 2021

After a tremendous stretch of non-stop weekly inflows into mutual funds and related investment products…

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First Weekly Outflow From Stocks In 2021

After a tremendous stretch of non-stop weekly inflows into mutual funds and related investment products since before the start of 2021, the latest week showed net selling of equities for the first time this year.

According to EPFR, net flows into global equity funds turned negative in the week ending September 22 to the tune of -$28.6BN vs +$45BN last week (which was one of the top 3 largest inflows on record), alongside the sizable drawdown in markets in the start of the week (if not the end). This was the biggest outflow from US stocks since Feb 2018. Offsetting the equity outflow was a massive $39.6BN going into cash (the largest since May’21), a modest $10.0BN into bonds (the smallest in 9 weeks), and a small $84MM into gold.

A more detailed breakdown of the equity flows by geographic segment:

  • US: largest outflow since Feb’18 ($28.6bn)
  • Japan: largest inflow in 8 weeks ($0.5bn)
  • Europe: largest outflow since Dec’20 ($1.8bn)
  • EM: inflows past 7 weeks ($2.6bn)

By style, the outflows were focused on US small cap ($2.9bn), US value ($3.3bn), US growth ($9.8bn), US large cap ($14.2bn).

By sector, the selling was pervasive with ever sector seeing outflows: energy ($0.2bn), real estate ($0.2bn); outflows materials ($12mn), coms svs ($0.1bn), utils ($0.2bn), hcare ($0.1bn), financials ($0.5bn), consumer ($1.0bn), tech ($1.2bn).

A key driver for the outflow according to BofA is pessimism over passage of $1tn BIB (Bipartisan Infrastructure Bill) scheduled Sep 27th & $3.5tn BBB (Build Back Better) Reconciliation which caused 2nd biggest outflow ever from infrastructure funds and largest consumer funds outflow YTD.

As Bank of America notes, we also had the first outflow from tech funds - the perennial market generals - since June.

The net selling was concentrated in the US market, although investors also net sold Western European shares. While Europe saw a total of $1.8BN in outflows, Goldman shows that demand for German equities has cooled ahead of this weekend's federal elections as shown in the bank's chart below.

Modest net selling of global EM benchmark products was more than offset by net inflows into country-specific products, including China-dedicated funds. By sector the largest net outflows (scaled by AUM) were from industrials.

Flows into fixed income products also cooled slightly (though remained positive), while FX flows favored CNY.

The question, as BofA's CIO Michael Hartnett suggests, is whether this is the end of the torrent of institutional and retail buying observed YTD. It matters because as the Bank of America strategist notes, global equity flows & global equity prices have been 93% correlated since ‘02, with both at all-time highs although in ‘21 equity inflows are much higher (>90%) than price (12%).

The BofA strategist also notes that despite the massive inflows in 2021, broad global indices such as NYSE (US stocks, ADRs, bond ETFs), S&P500 equal weighted, and ACWI ex-US have been stuck in elevated holding patterns for the past 6 months.

Finally, while the Monday meltdown may explain the outflow, how does one explain the latest week meltup? Well, as Hartnett explains, confirming the "bubble zeitgeist", majority of traders are “full-invested bears” but the anecdotal ratio of clients in “melt-up” vs “melt-down” camps currently 8:2, hence bullish price reaction to China/Fed/fiscal events this week, i.e., a vast majority are BTFDers.

According to the BofA CIO, history says the best way to hedge “bubble” is via “long leadership, long distressed” barbell, i.e. long leadership of bull (today = IG, tech, biotech…) & long distressed, cyclical plays (today = EM, energy, small cap) as investors chase laggards (the only market that outperformed Nasdaq in ’99 TMT bubble was Russia).

Tyler Durden Fri, 09/24/2021 - 17:00
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Economics

Stocks Shrug As Taper Tantrum Sparks Bond Bloodbath; Beijing Batters Bitcoin

Stocks Shrug As Taper Tantrum Sparks Bond Bloodbath; Beijing Batters Bitcoin

US equity markets rebounded from Monday’s pukefest on Evergrande…

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Stocks Shrug As Taper Tantrum Sparks Bond Bloodbath; Beijing Batters Bitcoin

US equity markets rebounded from Monday's pukefest on Evergrande fears (which actually came to be realized as the giant property developer did indeed default on its foreign dollar bonds). But then headlines about SOEs preparing for collapse and the payment of a local yuan bond's coupon seemed to spark exuberance. A brief taper tantrum ensued in equities after the FOMC statement, which ignited momentum higher and shorts were squeezed as rates spiked. The surge in rates, however, hammered the growthier assets and Nasdaq underperformed, ending the week lower (for the 3rd straight week), while Small Caps (value) outperformed.

In case anyone doubts that algos are running the show - just look at how Nasdaq futs were levitated desperately to get back to unchanged on the week. Additionally, 4450 was the key level for S&P...

...pinned by today's option expiration...

Source: SpotGamma

If one were to guess the S&P's weekly performance after everything that happened – Evergrande's missed coupon payment, Evergrande's EV unit liquidity crunch, more hawkish than expected FOMC/BOE decisions, the FDX/NKE outlook cuts signaling supply chain stress is here to stay, chaos in DC with debt ceiling doubts and complete uncertainty over the size (if any) of a new stimulus bill, crypto carnage, and weak seasonals - we suspect the vast majority of people would have predicted steep declines... as opposed to modest gains.

(h/t @knowledge_vital)

BTFD, right? 'Bad news is good news' right?

After the Monday rout, the short squeeze was unleashed and got back to even on Thursday... running out of ammo again to maintain the lift into Friday...

Source: Bloomberg

Notably the rotation back to Small Caps (value) from Nasdaq (growth) stalled today at a key resistance level...

Energy stocks went from worst to first this week after plunging almost 6% on Monday to ending the week over 3% higher (followed by Financials). Utes  were the biggest losers...

Source: Bloomberg

Evergande's dollar bonds are trading 25c on the dollar and the stocks tumbled another 7% this week (helped by a brief reprieve midweek which was reversed quite quickly) following last week's 30% plunge...

Source: Bloomberg

Oh, and don't forget the debt ceiling debacle looms over all of this...

Source: Bloomberg

Oh, and the market is now pricing in at least one rate hike by the end of 2022...

Source: Bloomberg

Treasury yields rose for the 5th straight week (biggest weekly spike in yields since March). Notably, the move was entirely contained in the last two days which were the biggest 2-day spike since the first week of March. Aside from 2Y, the move was surprisingly uniform with the entire curve up around 9bps...

Source: Bloomberg

2Y yields rose back above FF and 5Y yields pushed up to their highest since February

Source: Bloomberg

30Y Yields spiked up to post-payrolls highs...

Source: Bloomberg

The Dollar ended marginally higher on the week but was whipsawed around on China and Fed headlines...

Source: Bloomberg

Cryptos were clubbed like a baby seal this week, hit on liquidity needs around Evergrande's broad-based degrossing and on China's statement making crypto transactions "illegal". Bitcoin was actually the least bad horse in the glue factory but everything was hit...

Source: Bloomberg

Bitcoin has remained above $40k though for now...

Source: Bloomberg

Bitcoin found support at its 100DMA three times this week...

Source: Bloomberg

A noisy week for commodities saw Crude outperforming along with modest gains for copper while PMs were very modestly lower...

Source: Bloomberg

WTI rallied back above $74, its highest since mid-July...

Source: Bloomberg

And gold ended back below $1800...

Finally, Goldman had a warning this week. Valuation is not typically the cause of a bubble bursting and stocks can stay 'expensive' for a long time.

But over a long time, the returns that you might expect to get from investing in equities tend to be far smaller when you buy stocks at high valuations than when you buy them when they are 'cheap'.

Oh and remember, tapering is not tightening so BTFD!?

Source: Bloomberg

You are here.

Tyler Durden Fri, 09/24/2021 - 16:01
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Precious Metals

Fed Changed Nothing but Gold Got Smashed Anyway — Any Questions?

The U.S. dollar index, our friend Dave Kranzler of Investment Research Dynamics writes gold, "is back to where it was right before Federal Reserve Chairman…

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The U.S. dollar index, our friend Dave Kranzler of Investment Research Dynamics writes gold, "is back to where it was right before Federal Reserve Chairman Jerome Powell's press conference yesterday. When Powell said 'maybe in November we'll have a taper schedule,' the dollar shot up and paper gold was slammed. With the dollar back down to its pre-presser level today, gold is still down $36."

Indeed, this week the Fed essentially said that it isn't "tapering" its bond purchases yet, though it might (or might not) do so soon, nor is it raising interest rates, though it might (or might not) do so sometime next year.

That is, the Fed offered only a lot of temporizing for the umpteeth time.

But what if the Fed did begin "tapering"? Presumably that would diminish demand for bonds, weakening their prices and making other assets, even gold, more attractive.

As for interest rates, real rates are already deeply negative as inflation increases and traditionally gold has risen in price even as interest rates rise when they lag inflation so much.

So gold's latest counterintuitive performance might raise questions about what is going on, and particularly about official but surreptitious intervention in the market.

People in the gold industry might ask certain agencies about the frequent anomalies involving the gold price – agencies like the Fed, U.S. Treasury, U.S. Commodity Futures Trading Commission, the Bank of England, and the Bank for International Settlements, as GATA often has done.

But the gold mining industry and the World Gold Council always refuse to ask about intervention, and it must be assumed that, at least for the time being, adversaries of the United States that long have taken a strong interest in gold – particularly China and Russia – are going along with price suppression, in spite of or maybe even because of the gradual implementation of the "Basel 3" banking regulations that seem likely to reduce the gold derivatives positions of bullion banks.

Gold and gold mining investors who would prefer not to wait for central banks to decide the fate of gold can always ask the companies in which they have invested, their elected officials, their investment houses, and news organizations to pursue the market manipulation issue. GATA has made it easy, compiling the major documentation here.

Of course, most of the important participants in the markets and news media have been bought off. But even then, you can embarrass them with the documents.

      
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