A Melman Minute
| By | Leonard Melman |
|---|
Quite a few years ago, a popular singer of the 1950s named Peggy Lee had a hit song entitled, "Is That All There Is?", meaning how little real emotion was generated in her life by a series of events which should have been earth-shaking. That is precisely how it appears to me that the world of gold has been acting of late.
Please consider the following which either are still or have recently taken place:
ISIS is rampaging across northern Syria, the northern half of Iraq and is threatening to engulf Kurdistan and southern Turkey in their cruel, sometimes vicious expansion.
Minutes from the USA Federal Reserve have just made it clear that plans to tighten stimulation and perhaps sent interest rates higher have been postponed once again, perhaps for a lengthy period of time.
While Europe's economies appear to be heading toward contract, European Central Bank Chief Mario Draghi has made it clear that there is no limit at all to what he would have his bank do in order to stimulate economic growth.
Under Japan's President Abe, the Japanese Central Bank has specific orders to maintain loose money policies with the specific goal of increasing inflation.
An noted in the charts below, several important securities markets in the world now appear to be changing direction to the downside.
And, to provide a negative psychological back-drop, the spread of the dreaded Ebola virus appears to be accelerating and could be approaching a genuine crisis point.
I am particularly interested in the three major European securities markets in this analysis, namely the British FTSE Index; the French CAC 40 Index and the German DAX Index.
First, the FTSE:
As might be noted, FTSE has suddenly plunged by almost 500 points, dropping the average below the trading channel which has contained action for over one year.
Next, the CAC 40:
Not only has the French CAC 40 Index dropped below its trading channel, but the chart also appears to have formed an important "double-top" formation with the first peak near 4,600 and the second at 4,500 with recent trading haven driven the index below the preceding low, thereby apparently adding confirmation to the usually bearish formation.
Finally, the very important German DAX Index:
The DAX Index has formed patterns which are remarkably similar to both the British and French indexes and we believe it is also important to note the steepness and consistency of the recent selling.
Our conclusion is that the sudden, simultaneous downturn in three of the world's most important securities markets suggests that something out of the ordinary in terms of regional economic contractions may be occurring - and, historically, should developments of this nature occur, the implications for the precious metals are positive.
However, we must also point out that despite continuing heavy selling in Europe this morning, gold and silver are trading moderately to the downside, against the pattern which history might suggest.
………..
In an associated story, we note an article authored by financial writer John C. Ogg regarding Draghi`s latest pronouncements to take action and stimulate Europe`s economic performance. Ogg points out that while Draghi`s words seem potent, he actually may be out of economic ammunition.
Draghi just delivered a speech to the Brookings Institution in Washington in which he, "…stressed an urgent need to raise potential output in the Euro area through reforms…", even harking back to the famous letter from John Maynard Keynes to President Roosevelt in 1933 containing his recipe for improving economic performance. But Ogg is also unkind enough to tell us that, "…Draghi sounded more and more like a man caught in a shootout who ran out of ammo - and who just keeps yelling to convince others that he may still have some…"
Perhaps actions over the weekend will provide us with some directional clarity.
EARLY FRIDAY DATA as of 8:00 AM PDT
Dow Industrials, 16,674, + 16
TSX Index, 14,210 -249
Gold, $1,220, - $4
Silver, $17.28, - $0.14
Base metals, (average), - 1.0%
Mining share indexes (avg.), - 1.8%
US Dollar Index, 86.08, + 42 basis points
TYX Index (30-year bond rates), 3.038%, - 24 basis points
Crude Oil - $85.00, - $0.77