Gold Plunges On Rumors.
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In This Issue.

* FOMC minutes cause huge selloff.

* Gold trades through "death cross".

* Currencies get whacked!

* Chuck has another conspiracy thought.

And, Now, Today's Pfennig For Your Thoughts!

Gold Plunges On Rumors.

Good day. And a Tub Thumpin' Thursday to you! Well, the snow has yet to reach us here, but by all accounts it's on the way, and should be an awful mix of snow and freezing rain. Most cars these days, with the proper tires, can deal with snow. It's the ice that gets ya! I'm actually writing from home this fine morning, as I have a doctor's appt. right out of the starter's blocks this morning. It's the cellulitis in my leg again, folks. One of these days, I'll be able to put all this in my rear view mirror, but for now, I have to deal with it.

Well, all hell broke loose yesterday when the Fed's meeting minutes were made public. Gold lost so much ground, and the euro which had been feeling pretty much like pounding its chest lately, was sold like funnel cakes at a state fair! Why? Well. apparently, the Fed Heads discussed the costs and benefits of additional asset purchases. Most thought that purchases announced so far had been effective, with many pointing out relative strength in auto and housing markets as an example of how lower longer-term interest rates are supporting economic activity. With that said, a number of participants continued to express concerns that added purchases could complicate the process of eventually unwinding of existing stimulus. A few cautioned about inflationary risks and "some" worried that further purchases could undermine financial stability.

Ok.. at first glance, I don't see much there, but what the markets apparently saw was a Fed that come to the crossroads and are worried about what they are doing (QE) and have begun to think of how to unwind all of this stimulation without accelerating inflation. This take by the markets was very beneficial to the dollar, and with the euro being the offset to the dollar. well. the euro dropped like a rock!

However, the biggest loser of the day was Gold. and for once I don't believe this was driven by the short positions held by the 9 bullion banks of which 4 own the majority of the short positions. Long before the Fed meeting minutes were released, Gold was getting sold. There were rumors on the street that a large commodity hedge fund had been forced to liquidate its holdings. Our Ty Keough thought that margin calls were to blame.

Then the Fed's meeting minutes printed and it was what my dad used to say, Katy bar the door! I have no idea why, if the Fed mentioned they would stop QE, that stocks would benefit, but they did.. and there was a rotation out of commodities like Gold, Silver, Oil, and into stocks. Gold actually had some technical factors hitting it too. the price of Gold fell through not only its 200-day Moving Avg, but also its 50-day Moving Avg. this is known by traders as "the Death Cross".

OK. it's not as if we haven't seen this before during the bull market for commodities. April 2012, Gold met up with its "death cross" and we all know what happened next. It rallied like no tomorrow! So. I'm expecting to see some upward movement in Gold soon, as it is now extremely oversold!

Recall last week, I told you about an analyst that called for Gold to fall to $1,550 before taking off for huge gains? When gold was $1,650, a fall to $1,550 seemed to be a little out of line, but not so now! So, let's hope that the analyst that saw Gold falling to $1,550 before it took off for huge gains gets the second part of his call correct too!

So. investors are thinking that the U.S. economy, is on the mend, and now's the time to get into stocks. Hmmm. I would suggest that they step back and take a look around. Interest rates are at near zero and will remain there for at least another year. The Fed, even if it is questioning its move now, has implemented 3 rounds of bond buying (QE), unemployment is going in the wrong direction, Housing starts just fell, and the list goes on. If everyone that runs this country was so upbeat about the economy, we wouldn't see any of this stuff!

But.. maybe, just maybe, stock buyers are on to something. but then. maybe not! But, one thing I've learned in life. It is what it is. Now we have to deal with what's been put before us. We can choose to run for the hills and bail out. or hunker down, and look for bargains. Knowing what I know about the U.S. economy, debt, and deficit spending, I think I'll stick with the latter of the two options.

Apparently the overnight markets aren't thinking that stocks are the "end-all" to what ails investors. And I'm sure that will carry over to U.S. stocks today.

So, we had all this selling yesterday, and I have to say I don't believe I've seen a day that was so harsh in its selling before. I probably have, just don't recall it. 2013 marks the 21st year of writing the Pfennig folks. and I was in the "markets" plenty of years before that! I know, you see a picture of me and say, "he can't be that old"! HA! The past 6 years have been pretty harsh on me, I must say, so just imagine how young I would look without the past 6 years beating on me like Animal does to his drums!

OK, I had to break up the negative tone of the letter there with a side bar. I'm sure you don't mind!

Well. It's like going to a disaster site and going through the debris. It's all over this morning, the collateral damage was extensive. There was only one currency that withstood the storm, and that's the dollar. The euro seemed to settle down last night for awhile, but then a composite index of factory and services output for the 17-nation currency block fell in January. The index numbers, for those of you keeping score at home, are: output fell to 47.3 from 48.6. So, a significant fall.

So this report reminds us of how I keep saying that the euro and Eurozone was not out of the woods, yet. and while the most recent economic data from Germany, the Eurozone's largest economy, has shown a recovery, this report wipes out all the good those German positive reports had for the euro.

This one report, as brought the euro-bashers out of the walls again. RBS, who should probably not be making such calls, but instead find a corner and hide, due to their participation in the LIBOR scandal, says that the euro is going to be 1.30 by the end of March, and 1.19 by the end of the year. My long time pal, John Mauldin, who has been saying the euro will collapse to parity for over two years, was out saying that again. John is a very smart man, but we've been in different corners when it comes to the euro.

That's not to say I don't think the euro could drop like that. It's just saying that I don't think it will happen, the euro has too much resiliency in it. I mean didn't the euro bashers say the same things in 2005? And 2008? And 2010? And each time their calls for a collapse didn't happen. so, here's another challenge.

It's as if the world has put blinders on, and forgotten the U.S.'s problems. Well, for yesterday, and probably today, the problems here in the U.S. have been pushed to the back seat. And once again, my conspiracy blood is boiling. So, if you don't like my conspiracy thoughts, skip ahead. Now, for those of you who stayed around. You don't think. nah. that could never happen. Oh well, I'll blurt it out and throw it against the wall to see if it sticks! You don't think that this sell off in Gold that triggered this whole thing, was engineered by the Gov't, so that all the attention to the sequester would be diverted do you? I do. And that's that!

OK. for all of you who skipped past the latest conspiracy thought by me, welcome back! Well, the sequester has been quite the topic in Washington D.C. lately. There are only 8 days left to work out an agreement, and it appears that both sides of the aisle are more interested in swaying public opinion as to who's to blame than working on an agreement. Personally, I'm hoping that no agreement gets done, and we begin to see cuts to spending. Let it start out small, like it is scheduled to do, and take them one at a time, and find out that it's not "so bad"! But, here's my thought on what will happen, and none of it is good for the dollar.

The lawmakers will find a way in the 11th hour to kick the can down the road once again. Hey! It's what we're good at! Too bad we can't find someone to pick the can up and say, "no mas!" And just like when the cuts were kicked down the road at year end, the markets won't like it, and take it out on the dollar. So. we can either accept the cuts, or kick the can down the road. I suggest you call your representative and tell them your preference.

Then There Was This. Long time Pfennig Readers know that I really respect and enjoy reading whatever Bill Fleckenstein writes. I found this over at King World. Well, this past weekend, before the Big drop in Gold yesterday, he was asked "Bill, we've had a lot of mainstream media the past few weeks saying the gold bull market is over, your thoughts on that?" and here's Bill Fleckenstein's response.

"Don't they say that every day, every week? Haven't they said that for 12 years? It's just another phase of a correction that's been underway for quite some time. I think now that sentiment has probably gotten about as lopsided on the downside as it ever gets on the upside. We're into the phase where it doesn't matter what the news is, gold just gets sold, and it's got a certain amount of momentum. When that happens on the upside that's usually near the end (of a move), and so I think we're probably near the end of the correction.

Sentiment is quite low and a lot of people have piled in on the short side. Meanwhile, physical demand continues to inhale metal. So we are set up for a low that gets made somewhere in the not-too-distant-future. When it does it could be kind of explosive (to the upside) when the market finally turns." - Bill Fleckenstein

Chuck again. I sure hope Bill's correct here and his thoughts play well with the analyst that I talked about last week, and again this morning.

To recap. It was an ugly day in the currencies and metals, folks. First Gold sold off big on rumors that a large commodity hedge fund had to liquidate, then the icing on the downside cake came in the form of the Fed's meeting minutes where the Fed Heads apparently are getting squeamish about their latest round of QE. the markets took this as QE will end soon, and sold everything that wasn't a dollar.

Currencies today 2/21/13. American Style: A$ $1.0255, kiwi .8360, C$ .9815, euro 1.3185, sterling 1.5255, Swiss $1.0730, . European Style: Rand 8.92, krone 5.6790, SEK 6.4255, forint 221.90, zloty 3.1665, koruna 19.3390, RUB 30.38, yen 92.85, sing 1.2405, HKD 7.7555, INR 54.48, China 6.2398, pesos 12.78, BRL 1.9675, Dollar Index 81.36, Oil $94.46, 10-year 1.99%, Silver $28.70 and Gold. $1,572.60

That's it for today. Well, that was quite the day yesterday. lots of collateral damage in the markets. but today is a new day, and we will see if the currencies and metals can begin to pick up the pieces to start over. we were talking about the asteroids and meteorites that fell out of the sky last week yesterday on the desk, and I said, that it looked like after all these years, that Chicken Little was correct! And Stevie Ray Vaughn. both claimed the sky is falling. Antione told me the other day that his new baby girl is doing well, gaining weight, and getting bigger. Recall she was a pre-me, so she had that working against her from the get go. So Great news! Little Braden Charles was at the house yesterday. He's at the age where he says "no" to everything. running and jumping everywhere, he's a handful now. but cute as could be! And with that. I thank you for reading the Pfennig and hope you have a Tub Thumpin' Thursday! Stay safe in the snow and ice today!

Chuck Butler
EverBank World Markets

Posted 02-21-2013 6:03 PM by Chuck Butler
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