Asset protection
Spain’s central government said that it would suspend Catalonia’s autonomy on Saturday. What does it imply for the gold market?
As we informed on Tuesday, Madrid set Thursday morning as the ultimate deadline for Catalonia to declare independence or its willingness to remain a part of Spain. But Catalan president Carles Puigdemont ignored the deadline and did not clarify his position. Instead, he wrote a letter to Rajoy, threatening with a formal declaration of independence in the regional parliament:
“If the government continues to impede dialogue and continues with the repression, the Catalan parliament could proceed, if it is considered opportune, to vote on a formal declaration of independence.”
In response, the Spanish government is to suspend Catalonia’s autonomy on Saturday. In a statement, the central government wrote:
“At an emergency meeting on Saturday, the cabinet will approve measures to be put before the senate to protect the general interest of Spaniards, including the citizens of Catalonia, and to restore constitutional order in the autonomous community.”
Although the crisis over Catalonia deepened (importantly, two pro-independence organizers, Jordi Cuixart and Jordi Sanchez, were imprisoned on Monday), investors were unmoved. Actually, the euro rose against the U.S. dollar yesterday, as one can see in the chart below. So the price of gold increased as well.
Chart 1: EUR/USD from October 17 to October 19, 2017.
It implies that the uncertainty about Catalonia’s fate has been already priced in, at least unless something really bad happens. It might be also the case that investors believe that Madrid will finally deal with the problem and Spain will not split up (especially given Puigdemont’s hesitation). It is also worth remembering that traders are now focused on the upcoming ECB meeting, which can be a turning point for the bank’s monetary policy.
To sum up, Puigdemont ignored another deadline set by Madrid to clarify his position on Catalonia’s independence. The central government is to trigger Article 155 of the Spanish Constitution to suspend Catalonia’s autonomy. Although the euro and gold shrugged off the deepening conflict about Catalonia (actually, both assets appreciated yesterday), we could see some volatility during the weekend and in the aftermath. The Spanish central government may trigger Article 155, while Japan will hold a parliamentary election. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Thank you.
Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Famed Swiss investor Marc Faber, known as ‘Dr. Doom’ for his bearish views on the economy and equity markets, has sparked outrage after suggesting the US only prospered because it is ruled by white people.
Thank God white people populated America, not the blacks. Otherwise, the US would look like Zimbabwe, which it might look like one day anyway, but at least America enjoyed 200 years in the economic and political sun under a white majority,” the financial analyst wrote in a newsletter in the October edition of his The Gloom, Boom & Doom Report.
The comment, branded as racist, has led to a public backlash with major US media outlets rejecting Faber as a guest commentator.
“We do not intend to book him in the future,” said a CNBC spokesperson, as quoted by Reuters.
“Faber has not appeared on the network often, and will not be on in the future,” spokesperson for Fox Business Network said.
In response, the disgraced analyst told Reuters in an email: “What else would you expect? If stating some historical facts makes me a racist, then I suppose that I am a racist. Maybe I am wrong, and the US would be far more prosperous if the blacks had populated it, but then please explain to me why you would think so.”
Faber has reportedly left the board of a global asset manager Sprott. Mining companies NovaGold Resources and Ivanhoe Mines announced the departure of Faber from their boards of directors as well.
“The recent comments by Dr. Faber are deeply disappointing and are completely contradictory with the views of Sprott and its employees. We pride ourselves on being a diverse organization and comments of this sort will not be tolerated,” Sprott Chief Executive Peter Grosskopf said in a statement.
“Ivanhoe Mines disagrees with, and deplores, the personally-held views about race that Marc Faber has published in his current investment newsletter,” Ivanhoe said in a statement.
….also from Marc Faber: Stock Market Party Coming To An End Warns Marc Faber
With continued uncertainty around the globe, today the man who has become legendary for his predictions on QE, historic moves in currencies, told King World News that the setup in the silver market is explosive as debt binge world faces two grim alternatives.
….also from KingWorld:
With Gold Surging Above $1,300, Here Are Two Of The Biggest Surprises From Jim Grant’s Conference
The rise in the market has seemed unstoppable. Despite the Federal Reserve continuing to hike interest rates and tightening monetary policy, geopolitical risks from North Korea to Iran, mass shootings, failure of legislative agenda and weak economic growth – the market’s rise has continued unabated.
Much of the recent rise, as discussed last week, has been based upon faulty assumptions about the effect of tax cuts and reforms. However, in the short-term, it is always the exuberance of market participants chasing returns as the “fear of missing out,” or FOMO, overrides the logic of fundamentals.
The problem for investors is that since fundamentals take an exceedingly long time to play out, as prices become detached “reality,” it becomes believed that somehow “this time is different.”
Unfortunately, it never is.
Our chart of the day is a long-term view of price measures of the market. The S&P 500 is derived from Dr. Robert Shiller’s inflation adjusted price data and is plotted on a QUARTERLY basis. From that quarterly data I have calculated:
- The 12-period (3-year) Relative Strength Index (RSI),
- Bollinger Bands (2 and 3 standard deviations of the 3-year average),
- CAPE Ratio, and;
- The percentage deviation above and below the 3-year moving average.
- The vertical RED lines denote points where all measures have aligned
Over the next several weeks, or even months, the markets can certainly extend the current deviations from long-term mean even further. But that is the nature of every bull market peak, and bubble, throughout history as the seeming impervious advance lures the last of the stock market “holdouts” back into the markets.
As Vitaliy Katsenelson penned last week:
“Our goal is to win a war, and to do that we may need to lose a few battles in the interim. Yes, we want to make money, but it is even more important not to lose it.
We are willing to lose a few battles, but those losses will be necessary to win the war. Timing the market is an impossible endeavor. We don’t know anyone who has done it successfully on a consistent and repeated basis. In the short run, stock market movements are completely random – as random as you’re trying to guess the next card at the blackjack table.”
I wholeheartedly agree with that statement which is why we remain invested, but hedged, within our portfolios currently. Unfortunately, for most investors, they are currently playing with a losing hand.
As the chart clearly shows, “prices are bound by the laws of physics.” While prices can certainly seem to defy the law of gravity in the short-term, the subsequent reversion from extremes has repeatedly led to catastrophic losses for investors who disregard the risk.
With sentiment currently at very high levels, combined with low volatility and excess margin debt, all the ingredients necessary for a sharp market reversion are currently present. Am I sounding an “alarm bell” and calling for the end of the known world? Should you be buying ammo and food? Of course, not.
However, I am suggesting that remaining fully invested in the financial markets without a thorough understanding of your “risk exposure” will likely not have the desired end result you have been promised.
As I stated above, my job is to participate in the markets while keeping a measured approach to capital preservation. Since it is considered “bearish” to point out the potential “risks” that could lead to rapid capital destruction; then I guess you can call me a “bear.” However, just make sure you understand that I am an “almost fully invested bear”…for now.
But such can, and will, rapidly as the market dictates.
(Follow up read on how to approach the market: The 80/20 Rule Of Investing)
Just remember, in the market there really isn’t such a thing as “bulls” or “bears.” There are only those that “succeed” in reaching their investing goals and those that “fail.”
Lance Roberts
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog an
“I wrote a series of articles on the Fed versus History. If you thought the Fed could keep us out of recession, you would be a bull. If you thought History would prevail, you should stay out of the market. I bet on History. Time has shown that History won that fight. History is a tough opponent. Betting against History is usually a losing proposition.”
September 2008 seems so long ago now. The experiment of global QE has proven from the last 9 years that the $700 billion bailout in 2008 did not end the crisis, but kicked off a world that became addicted to ongoing bailouts….
….also:
If You Want To Know How Crazy Things Really Are Right Now, Take A Look At This… (hint, take a look at the chart below! – Ed)
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A sane voice in a scrambled investment world.
~ Ed R.
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