(Currency) Wars and Rumors of (Currency) Wars

by Turd Ferguson, TF Metals Report

Back in Friday’s podcast, I warned you to expect extreme volatility this week and a “sell the news” type of reaction to the ECBQE announcement. Well, it’s only Wednesday and things are already shaking around the globe with more craziness to come.

Earlier today, we were quietly humming along with highs of $1305 and $18.50. Pretty sweet. And then, WHAMMO! The “leaks” hit from the ECB, via ZH: http://www.zerohedge.com/news/2015-01-21/ecbs-qe-leaked-board-proposses-%E2%82%AC50-billion-bond-monetization-month-dow-jones-reports

“And so with less than 24 hours to go, the ECB has decided to leak its deliberations not only to Merkel and Hollande, but Dow Jones. To wit:

  • DJ: ECB EXEC BOARD’S QE PROPOSAL CALLS FOR ROUGHLY EUR50B IN BOND BUYS A MONTH –  SOURCES
  • ECB SAID TO PROPOSE QE OF 50 BILLION EUROS A MONTH THROUGH 2016

More as we see it, but if indeed this will be a program without risk-mutualization and conditional and limited burden-sharing, where the hope was that Draghi would “shock and awe” the world with the size of the bond purchasing program instead, €600 billion per year looks decidedly on the low side of any “surprise” announcement where the whisper number was for €1 trillion per year, and if indeed this is the final formulation may result in a substantial disappointment for stocks after the initial kneejerk reaction.”

To the surprise of no one in Turdville, gold and silver were immediately sent reeling. This first wave of selling was almost certainly a sudden rush to the exits by some of the momo-chasing algos that had plunged into the Feb15 in recent days.

Then, from The Great White North, came a surprise rate cut announcement. This was completely unexpected and it put a bid back under gold and silver: http://www.zerohedge.com/news/2015-01-21/bank-canada-cuts-rates-fears-financial-stability-risks-oil-price-shock

Wait a second, now. This is suddenly NOT going according to Cartel plans. So what happened next? More selling of course! And I have a last as I type of $1288 and $18.08. Not good but not horrific, either. On the one-minute chart it looked like this:

franc dollar

Again, NONE OF THIS was unexpected and, as Pining astutely noted in the podcast thread, gold had gotten way ahead of itself with an RSI well above 70. It was due for a breather.

However, we must expect more selling now, inspired by The Cartel as they hope to chase out the spec momos and crash price back down. To where?

  • Well, their first target is to get gold back down and under  the always-important $1280 level.
  • IF they can really get things going today, a close back below $1272 would paint a very nasty bearish engulfing candle on the daily chart.
  • Eventually, they’d LOVE to get price back below the 200-day MA near $1257.
  • They’d also like to slow the ascent in order to forestall a “golden cross” of the 50-day MA ($1205) UPward through the 100-day MA ($1216).
  • Finally, we’d mentioned last week a clear option “sweet spot” near $1250 for both puts and calls. However, there are also 13,118 Feb $1300 calls outstanding as of yesterday. There is NO WAY that The Banks want to allow a price above $1300 at option expiry next Tuesday as every $1 above $1300 costs them $1.3MM.

In the end, I’m not too worked up over any of this. It was all expected and none of this deflates my enthusiasm for how 2015 has begun. These daily fluctuations and Cartel shenanigans do not impact the ongoing events of currency wars and central bank defections. They also do nothing to lessen the ongoing, robust demand for physical metal that seems to be taking on a life of its own.

Therefore, enjoy the theater and keep stacking. The paper games are simply the paper games. Unless you’re willing to walk that tightrope, as WOPR says “your only winning move is not to play”.

Keep an eye on the headlines and keep an eye on price. The only thing that we really want to avoid today is an ORD and a close below $1272. Everything else is just noise.

TF

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