[Chart courtesy of MarketWatch.com]

1. Moving the markets

Yesterday’s sell-off now appears in the rear-view mirror as a vanishing object, as the major indexes stormed back and ended solidly in the green. The S&P 500 closed just shy of a new record, although it broke the old high set on February 19 on an intra-day basis.

Surely, the move was not based on fundamentals, which are way out of whack, as Bloomberg demonstrates here, while explaining the real reason in this chart. Of course, for readers of this blog, this is nothing new but merely a refresher.

Gold lagged the entire session, thanks to higher bond yields, and pulled back into close to end the day in the red. Reviewing yesterday’s performance, and the importance of gold in the bigger picture, was Rabobank’s Michael Every:

Meanwhile, markets did wobble yesterday for entirely different reasons, with one of the key ones being that 10-year US Treasuries are now back up to 0.65%, which makes holding everything else that much less attractive. Including gold, which was supposed to be showing us that inflation was everywhere ahead (not just in assets) and that the USD was over. Yes, being below $1,900 and not above $2,000 is just a small detail in a far bigger picture, but it does underline that nothing is rock solid day-to-day – even metal.

That the precious metal will have a great future was further underscored today, as news that the Budget Deficit has hit a record caused ZH to comment:

On a YTD basis, 10 months into the 2020 fiscal year, the US has spent $5.631 trillion and collected just $2.824 trillion, which means that YTD outlays are a record 100% higher than receipts, which also includes the $8.3BN received last month and $63.4BN YTD in deposits of earnings by the Fed.

Ouch! And considering that this trend will not end soon, gold remains an important component in everyone’s portfolio, but it also means that sharp corrections will be inevitable.

Author and gold bug Peter Schiff saw yesterday’s sell-off this way:

What the market is doing is trying to flush out the weaker players. When it comes to a bear market, it’s trying to create some hope and sucker people back into the market by having a really big rally. Well, in a bull market it’s the opposite. The market is trying to instill fear in the weaker hands, so you get these spectacular one-day moves in the opposite direction of the primary trend to shake people out, to get the weaker players out of the market so you can clear away the excess baggage and then continue the trend.

In the meantime, equities remain in bullish mode, despite the Washington stalemate about a new coronavirus package with legal challenges about Trump’s executive orders to extend spending measures waiting on deck.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

For sure, it was a market where anything was possible. The Dow reigned supreme for most of the day, with a 300-point advance at one point, while the S&P 500 cruised slightly above its unchanged line. Gold and the tech sector plunged, with especially the former getting hurt by rising yields as bond prices crumbled but reversed a bit late in the session.

Things changed in the afternoon when all rebound efforts failed and the major indexes, including the Dow, went into swan dive mode and headed sharply south.

Traders were not sure about the outlook for the economy, despite slowing new coronavirus cases. However, the lack of progress in Washington toward additional aid soured the mood, and down we went.

Of course, after the sizzling ramp in gold and tech over the past weeks, a pause was to be expected. It remains to be seen whether today was just an outlier, or the beginning of more liquidation, as all asset classes puked in sync.

Quipped ZH:

And one wonders if the ‘dead cat bounce’ is over (if nothing else, today’s reversal is interestingly timed):

We will find out soon enough how this analog to the 1930s plays out. Just in case, have an exit strategy in place.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

It was another sloppy and choppy session with the Dow being the leader, while the Nasdaq was unable to climb out of an early hole, but it trimmed some of its initial losses. The S&P struggled all day but closed in the green, while gold came off its early highs but hung on to some modest gains.

Commented MarketWatch:

Investors monitored signs that a long-awaited rotation on Wall Street into more economically sensitive cyclical stocks could be brewing, but at the expense of their highflying counterparts.

However, more attention was given to Trump’s signing of executive orders extending some of the coronavirus relief benefits. Maybe that will push the warring parties back to the negotiating table for a reasonable solution to the current crisis, while abandoning irrelevant pork that has nothing to do with the Covid-19 disaster.

While the torrid advances of gold and silver have slowed a bit during the past couple of trading days, the bull run is far from being over.

Analyst Graham Summers noted in his latest mailing:

The reality is that the only way the Fed could stop gold’s rise would be to begin tightening monetary policy via interest rate hikes and reducing its Quantitative Easing (QE) program.

The Fed cannot do this without triggering a market crash. As I’ve noted on these pages before, the ONLY thing that stopped the March meltdown was the Fed going nuclear with monetary easing, providing over $3 trillion in liquidity.

Indeed, today the Fed continues to spend over $125 BILLION per month in QE a full three months AFTER the crisis. And the Fed has stated it will continue to do this until there is a full recovery (the Fed believes this will come at the end of 2021).

Put another way, the Fed is trapped. It can either tighten monetary policy and crash the markets, or it can let inflation run wild and gold will go parabolic.

In the meantime, the saber rattling continued between the US and China with new sanctions against politicians and organizations being considered. Then we learned that Chinese jet fighters crossed the midline of the Taiwan Strait, just as a senior US official was visiting the island.

All these developments increase uncertainties, which to me means gold should be an important component in anyone’s portfolio.