Gold Rises After Fed Meeting: Time to… Sell?
There’s been a lot of “tape bombs” hitting the newswire of late.
Investing app Robinhood was charged by the SEC with deceiving customers about their order flow.
Google was just hit with its third antitrust lawsuit since October… something I said was coming all the way back in September.
After what has been endless head fakes and deliberations, Congress is scrambling to finish up a stimulus package of around $900 billion. Rumor has it that this bill will include small business aid, direct payments and a federal unemployment supplement of some sort.
But for those of us interested in the precious metals sector, yesterday’s Federal Reserve meeting carried the most importance.
In it, Chairman Jay Powell said that the central bank will continue its monthly purchases of $120 billion in bonds “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
Translation: “we’re going to print money and bail out everything forever.”
Precious metals markets have obviously taken the news quite well, with gold poking at the $1,900 per troy ounce level for the first time in a month.
Source: Bloomberg
Silver is also coming along for the ride, with today’s high matching the peaks from early November.
Source: Bloomberg
That’s great for our overall positions in Proshares UltraGold (NYSEArca: UGL) and Proshares UltraSilver (NYSEArca: AGQ), which are up about 5% and 20%, respectively.
I’m taking profits here.
If there’s one thing to know about gold, it’s that it likes to trend. And for the last month – whether we believe it’s right or wrong according to the fundamentals – it’s been trending lower.
Source: Bloomberg
Moreover, it is banging up against the top of its upper Bollinger Band. And while I’m not personally a big believer in their reliability as indicators, the only big, sustained move up – with volume – was from June through August — when Congress initially started negotiations for a second stimulus.
Since then, whenever it has met that upper bound it has immediately retreated lower — as you seen in the chart below.
Source: Bloomberg
Well it’s been more than 6 months, and there’s still no stimulus. And while Congress may finally drag it over the line this time – the government will shut down if they don’t – it will be substantially smaller than the $3 trillion package initially proposed back in May.
Less stimulus means less currency debasement than previously projected, which in turn means less downward pressure on the dollar.
And with the US Dollar Index entering a zone of prior support, it’s looking like this down cycle is close to an end.
Source: Bloomberg
I’m still incredibly optimistic about gold’s future performance, and we’ll be back in it soon. Preferably, we’ll get a chance to pick up one of the 5 gold stocks I talked about last month… on sale.
But if this bill passes, we may need to play along with the retail army instead for a little while, because Santa Mitch (McConnell) claims he’s ready to deliver them a $300 Christmas gift early. And we know what retail army does when they’re cashed up and bullish.
Mostly, they’ve been levering up in options, buying single-stock calls – primarily Tesla.
But lately they have looooved the small caps…and they’re not alone.
Fund managers have been moving money around to underperforming sectors all year. And since November, the trade has been to move out of the slowing tech sector and into the Russell 2000.
You can really see this trend when we look at the triple-levered versions of each market – with the tickers TNA and TQQQ.
Source: Bloomberg
I’m not entirely sure how long the trend will last, but I’m willing to play along with a ¼ stake in the Direxion Daily Small Cap Bull 3X Shares (NYSEArca: TNA) – using a 3% trailing stop – for a week and see how it goes.
On the flip side, the December monthly options expiry is Friday, and market conditions have generally been volatile the day of. And since there’s a chance Congress actually fails to pass a bill, adding a ¼ stake to iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX) makes sense here too, as it’s an incredibly cheap hedge.
Now off to do some Christmas shopping…
All the best…
Matt Warder
