Brexit: An Opportunity to Sell the Gold Rally?

Is Brexit a trap for gold bulls? The uncertainty over the Brexit referendum vote next Thursday has caused a flight to safety in Treasuries, the yen and gold since the first of the month. You can see this move in the latest gold COT data (through June 14, 2016) which shows a huge spike in the speculative long position to a new high at 347,000 contracts. The open interest since then has soared on massive volume, so the speculative long position has surely set new records over the past three trading days. This long position is a threat to the market because it is certain to be on a hair-trigger.

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Commerzbank Considers Hoarding Physical Cash

Reuters reported this week that Commerzbank, one of Germany’s biggest banks, is examining the possibility of hoarding billions of euros in its vaults rather than paying the negative interest rates the European Central Bank charges for parking it with them. Commerzbank is part-owned by the German government. This move would represent a major protest against the ECB’s ultra-low interest rate policy which have been criticised by German Finance Minister Wolfgang Schaeuble. Schaeuble said in April that the ECB’s record low interest rates were causing “extraordinary problems” for German banks and pensioners.

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More Bad News from the Labor Market

The Kansas City Fed Labor Market Conditions Indicators (LMCI) are two monthly measures of labor market conditions based on 24 labor market variables. One indicator measures the level of activity in labor markets and the other indicator measures momentum in labor markets. A positive value indicates that labor market conditions are above their long-run average, while a negative value signifies that labor market conditions are below their long-run average.

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May Employment Report Lays an Egg

The Bureau of Labor Statistics (BLS) released its May jobs report this morning and the world was shocked to learn that the U.S. economy only produced a net additional 38,000 jobs last month. That wasn’t the only bad news. Total nonfarm payroll employment for March was reduced down from 208,000 to 186,000 and April was revised down from 160,000 to 123,000 for a combined 59,000 jobs less than previously reported. Over the past three months, job gains have averaged only 116,000 per month.

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What to Do? Nothing. Hold cash.

Stocks are way overvalued and over bought. Yes, the breadth has been good in the latest rally but I see the equities potentially failing, right here, right now. Earnings fell for the fourth quarter in a row and the economy is clearly slowing down. Could the major indices move up another percent or two and set new all-time highs? Sure. But I see less than 5% upside and at least 50% downside. That’s not a game I want to play.

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