DMR–Gold hammered lower on combination of Fed Week and upcoming options expiration

DAILY MARKET REPORT

Today’s sell-off in gold – down as much as $14 at $1193 in early trading – came on the COMEX  open and coincided with a major sell-off of foreign currencies across the board led by the British pound.  Given the broad circumstances, our best guess is that the downside is a reaction to next week’s Fed meeting.  It is a given that the U.S. central bank will raise interest rates by a quarter point.  The gold and FOREX markets though are probably registering concern about an announcement, or allusion, to further increases running into 2019.  We also have October gold and silver options expiration Tuesday next week.  Gold has a history of selling off during Fed Week.  It also has a history of selling off at options expiration.  Perhaps the combination of the two – even though October is a light month for futures volume – served as inspiration to the shorts, or perhaps even one aggressive short, to unceremoniously hammer gold lower.  As we post today’s report, we see the metal has retraced some of its earlier losses – down now about $10 on the day.

We will update later if more information surfaces.

Quote of the Day
“Those who held funds in dollars, pounds or other stable currencies, or in gold, saved their capital. The government set up rigid exchange controls as the inflation proceeded. As usual under such conditions, a black market flourished. The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.” – Scientific Market Analysis, The Nightmare German Inflation

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: This chart illustrates how quickly things can swing from placid to nearly out of control. As you see, for six years between 2008 and 2014, the Argentina peso held relatively steady against the U.S. dollar (right scale). Then the wheels came off.  Argentina is now seen as something of a poster child for emerging countries debt and currency problems. Those who own gold in Argentina understand the value of laying in the proper hedge ahead of a currency crisis and few would argue with the wisdom offered in our Quote of the Day. Few believe that Argentina’s problems will vanish as quickly as they appeared.

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