Weekend Update November 14

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.

 

ABSTRACT: The markets were mostly a mixed bag this week, with stocks and precious metals bouncing up and down before ending largely unchanged. The dollar eased back from recent highs but remained robust, keeping commodity prices lower. Despite encouraging signs, it’s still too soon to call it a recovery in the U.S., especially as Eurozone deflation, more modest Chinese growth, and sinking oil prices raise concerns about a global economic slowdown heading into 2015.

GOVERNMENT & POLICY

Amid Forex Scandal Fines, Bank “Bail-Ins” On the Table

The leading story in the financial markets this week was the $3.8 billion settlement reached between regulatory authorities in the United States and United Kingdom and the five banks implicated in rigging Forex activity. JPMorgan Chase, CitiGroup, the Royal Bank of Scotland, UBS, and HSBC were all forced to pay fines for allowing Forex traders to exchange sensitive information about their trade positions in the important one-minute interval prior to the currency fixes. The banks themselves profited handsomely from this collusive behavior, netting six-figure profits in an instant by knowing and influencing the direction of the fix.

The alleged manipulation of currency trading was not an especially revelatory finding in light of the 2012 Libor manipulation scandal that involved many of the same offenders, but the regulatory authorities additionally uncovered clear evidence of manipulation in the precious metal markets, as well.

In essence, there are no unadulterated financial benchmarks. It is openly acknowledged that these instruments are distorted and bent to the whims of institutional traders who are little more than speculators on the markets. Let me emphasize: this is no longer a series of rumors or some unsubstantiated conspiracy theory. Market manipulation is now an out-and-out matter of fact, and we ought to be skeptical when the replacement or solution offered (think: the CME Group now administering the “new” silver fix) comes from the same sandbox as the manipulators themselves.

The increasingly public nature of manipulation accusations and admissions is forcing the hands of large players to ostensibly “clean up” the industry and level the playing field. In this author’s humble opinion, I wouldn’t hold your breath. At this weekend’s G20 Leaders Summit held in Australia, there are rumors that a universal policy of bank “bail-ins” using depositor funds will be on the discussion table.

Because, if we’re going to delude ourselves to accept that the bankers’ and bureaucrats’ interests are somehow one and the same with our own, we might as well hand them the keys to our own savings accounts, don’t you think?

MARKET

Markets End Mixed While Metals Wander Aimlessly

After plowing through new record highs multiple times last week, the U.S. stock indices continued their seemingly inexorable climb on Monday and Tuesday before the winning streak was finally snapped. Both the Dow Jones and S&P 500 notched fresh record closing averages on Monday, and the S&P continued to edge higher on Tuesday. This marked the fifth consecutive record high close for the index, a feat it last matched in May 2013.

Wednesday finally saw the winning streak snapped, as the Dow and S&P ended just marginally below unchanged. The Nasdaq however, was buoyed into the green by Apple stock hitting an all-time high. Thursday was another struggle for the indices to break into positive territory despite a favorable earnings report for Wal-Mart, which saw its stock jump over 4% after beating analysts’ expectations. The news that five of the world’s biggest banks had reached a settlement over allegedly rigging trades in both the Forex and precious metals markets had investors wary, and was largely blamed for the subsequent hesitance in equities.

Gold had its best trading day in 14 months on Friday, rising $45 from the opening of markets in the East to the close in New York. The yellow metal gave much of these gains back on Monday, however.

Using technical analyses, the 61.8% Fibonacci retracement line shows that gold currently has support at $1,138.10, while the 50% Fibonacci retracement indicates a resistance level at $1,186.70. Silver has been trading sideways since plunging below $16/oz, while the Platinum Group metals have slid on waning global demand. This has been especially true with the economic sanctions against Russia, the world’s leading palladium producer.

Although the dollar is finally easing a bit, it has remained robust, especially against other currencies around the globe. This strength in the greenback has helped keep precious metals prices lower, while also encouraging Russia and China to deal in yuan in an attempt to undermine the dollar. It is currently trading at a 14-month high against the pound sterling, and has been absolutely dominating other world currencies since the beginning of the third quarter.

The strength of the dollar, as well as oversupplies of energy and agricultural products, is causing a drop in commodities prices. The crude oil benchmarks bounced from four-year lows on Friday, but are expected to continue to fall. The U.S. government adjusted its forecast for average gasoline prices for 2015, revising projections to $2.94 per gallon, down 44 cents from just last month’s predictions. Despite sharp gains in early trading on Friday, Brent crude remains below $80 per barrel while West Texas Intermediate is struggling to stay above $75/bbl. Lower oil prices are also dragging down energy stocks, contributing to the S&P 500 remaining flat.

In the Asian markets, Japan’s Nikkei 225 continues to ride high, approaching 17,500 after opening in the green on Friday. Hong Kong’s Hang Seng index crossed the 24,000 mark as the exchange is benefiting from establishing crossover trading with China’s Shanghai exchange.

GEOPOLITICS & WORLD EVENTS

Putin Puts the Screws To the West at Russia’s Peril

In his search for a stop-gap to contain the bleeding of his country’s economy, Russian President Vladimir Putin is taking direct shots at Western supremacy by aligning Russia with America’s biggest adversaries in order to circumvent crippling economic sanctions. This week at the Asian-Pacific Economic Cooperation (APEC) summit, Putin inked a second major agreement to trade natural gas with China in the near future, making plans for a Siberian pipeline to mainland China. In addition, Russia struck a deal to build two nuclear power plants in Iran with later plans to construct as many as six more.

As Russia continues to marry itself to the Chinese sphere of economic influence, and lend aid to Iran in its capacity to refine uranium, it risks further souring relations with Europe and the United States. Shelling has resumed in Donetsk, in eastern Ukraine, as both Kiev and the pro-Russian rebels are accusing the other side of violating the toothless ceasefire agreement that remains supposedly intact despite continued fighting and military escalation. With the conflict in Ukraine still unresolved, the EU and the U.S. are each considering further sanctions against Russia.

The ruble continues to fall dismally low, and the entire Russian stock market now worth less than the company Apple. Though it would appear that Russia can ill-afford to endure additional hardships from foreign sanctions, Putin is undeterred, playing right back at the West. Time will tell whether these bold actions are ultimately worth the risk.

Mexico Reeling From Cartel Murders

In a chilling turn of events that reveal the high degree of graft and corruption that has plagued Mexico as a result of duplicitous U.S. drug policy, Mexican citizens are now taking to the streets in protest over the scandal that left a group of over 40 students dead.

In the town of Iguala, this group of students was raising concerns about the city’s former mayor, whose wife has familial connections to one of Mexico’s notorious drug cartels. The students were arrested and, in an attempt to silence criticism that Mexico is becoming a bona fide narco-state, were turned over to the cartel by these corrupt police. The students went missing and were subsequently found dead, execution-style, leaving little doubt that the police and the municipal administration of Iguala are deep in the coffers of the drug cartels.

The horrific chain of events has sparked unrest and rioting throughout Mexico, plunging certain regions into a state of veritable uproar. Mexican citizens are demanding control of the country back from the organized drug syndicates, which few would believe are not in cooperation with local governments and law enforcement. The former mayor, Jose Luis Abarca, has been formally charged in the students’ murders.

With its onerous, three-decade “War on Drugs” and secret reconnaissance programs like “Fast and Furious,” the United States is partly to blame for the rise of powerful–and ruthless–cartel activity south of the border. Mexico must now face the most violent strains of its drug trade head-on if it hopes to regain stability and engender credibility with the people.

News & Notes

Catalonia votes 80-20 to secede from Spain; the is vote non-binding, and won’t be recognized by the Spanish government.

China is projected to have its lowest annual growth in 24 years, perhaps a sign of a deepening global economic slowdown.

India imports nearly 300 tonnes of gold in September and October, again surpassing China as the world’s largest demander of the metal.

A LOOK AHEAD: The G20 Leaders Summit in Brisbane, Australia this Saturday and Sunday should cause some stir on the markets one way or the other. A slew of important benchmarks for gauging the direction of American economy are on the docket next week, including October’s Producer Price Index, Consumer Price Index, and the minutes from the FOMC meeting.

 

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.