Gold is NOT a crisis hedge
Euro to find support at 1.1090
Yesterday was one of the most wildest day in stock markets and the worst single day fall since 1987 . The fall so far from Feb 19th has been the swiftest and deepest in stock market history. I had called this top in the markets since a long time but I was tested to the core. To be honest, when I mentioned that the S&P 500 could test levels like 2450 today, I was not that serious. But then, the ways of the bear markets are totally unpredictable.
So what caused yesterday’s panic? After refusing, for weeks, to call the coronavirus a pandemic, the WHO head finally relented. That opened the flood gates. The POTUS conspiracy theories and his disastrous address to the nation (his second since taking office) only added fuel to the fire .
Based on historical observation, policy makers are better at reacting and fixing things than they are at avoiding breakage through proactive policy measures. They are fire fighters.
While stronger and aggressive responses from policy makers on the economy and markets are in the pipeline, what is more required is visibility on a game plan and action on the health crisis front. White House so far has not handled that effectively. Trust they will get their act together now.
Equities
The question many have on their mind - is the decline over ? According to the technical position of the markets it doesn’t look like it. Without going into much details now as this report is already long, markets could challenge the percent move down to Mar 9, 2009 which was 47.2 % or go slightly lower. With the over 20% decline in major markets since yesterday, and if you label that as a bear market, how can you have a bear market without any bears? There could be a scenario where the S&P 500 can bounce to 2800-3000 in the but be prepared for a much bigger fall.
Bonds
The 98% bulls in bond traders appears to be an extreme that has coincided with a top. Bonds no doubt had rallied much beyond our expectations and reached a high of 191^22 intraday and dropped a whopping 14 points. For the first time, we saw yields rising as the equity markets crashed yesterday. We still believe greater risks for bonds remain to the downside.
Euro
Think Euro should find support at 1.1090. Would look to be long.
Gold
Gold had a roller coaster ride and has everyone confused. A lot had to do with margin calls, excessive leverage and lack of liquidity in this market.
I have never been strategically bullish on gold. Investors always thinks the precious metal will be a crisis hedge but they are usually disappointed. I have always looked at the Gold vs Silver ratio. I see something of importance that happened 9 years ago .
In 2011, Silver topped on Apr 25, and gold went to a new high on Sep 06, unconfirmed by Silver. In recent months, Silver topped on Sep 04 2019, and Gold has just reached a new rally high on Mar 9, 2020 unconfirmed by Silver. In the first case, the two tops were five months apart. In the current case, they are 6 months apart. It is interesting that the same day of the year marked a high in both configurations.
Gold topped on Sep 6, 2011 and Silver topped on Sep 4, 2019. Think if Gold drops below 1565 the low of Feb 28th, it should eliminate any bullish potential and increase the odds for the move down .
Happy Hunting!
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.