The Bank of Japan signaled it will keep loose monetary policy while the perception of tightening monetary policy by the Federal Reserve dominates market expectations. Off to the races! The yen started to swan dive against the dollar, and euro dives after terrorist attack.
As money flows started to accelerate money flows around the world, we are seeing a dive-bombing into dollar-based assets. Even the NYSE apparently puked with a technical glitch, and the rush into dollar denominated US equities this morning is another reflection of this hot money flying all over the place, being cued by interest rate and monetary policy expectation shifts.
I’ve included a comparison chart on silver versus dollar/yen. The blue line in the chart below shows the dollar rising versus the yen (although it’s harder to see just how BIG that move is – flirting with a massive 1% move in just a few hours is a massive move for major currencies).
We saw metals suddenly starting to sell off again with a small delay. Dollar/Yen even stabilized, and it looks like the accelerated appreciation of the dollar for at least the New York session is now over). We also saw another dip down going into the London PM Fix, and I’ve saved Kitco’s chart again here just in case strange stuff happens to their live chart again, as I documented on my Facebook wall yesterday (click here and see comment section). Silver was visibly being influenced by a rising dollar versus the yen going into the London PM Fix. Now that dollar/yen looks like is cooling off after flirting with a 1% monster-sized move, we should hopefully calm down with silver and gold for today’s trading.
For about six months I’ve published my view that the DXY dollar index would reach about 105 before policy makers decide they’ve seen too much market movements in response to differences in monetary policy in different zones of our global economy, and how that translates into impacts to corporate profits and exports. Declining yen is good for the Japanese economy as a sugar rush, but US multinational corporation profits are going to get hit in a major way if the dollar keeps flying higher. By the time we get to 105 on the DXY and unstable and inflated markets (especially, the bond market) are going to give the Federal Reserve and other central banks true reason to second-guess what’s going on with all these money flows. It could get even more ugly for the remainder of the year in precious metals because they’re very sensitive to these global macro shifts, and the guardians of the fiat paradigm will also “help” metals decline as well given that holiday trading periods are ideal for “painting the tape.”
These are extreme swings today, after extreme moves since the US election. I made public my bond market forecast before the bond market started to go insane. The bond market isn’t finished going insane! The bond market and credit markets all around the world (especially in China, and what that does with their currency moves and how their currency moves end up moving assets all over the world in a chain reaction) are going to foster instability in global financial markets that also help end up pushing up the dollar. As the dollar rises through all of these dynamics and as we move to 105, I think we’re going to see Federal Reserve officials change their signals with their public speeches and comments. We’ll know soon enough…in January.
Links that are helpful context for further understanding: