The last two weeks have witnessed a remarkable change in the market perception. Since 2008, the U.S. dollar and the central banks have been the authority on what the markets are guided to do. The last two weeks have been different. The U.S. dollar has been falling versus many currencies in spite of the fact that the markets have been going down quickly. Gold which has largely been ignored for the last few years in terms of safe haven appeal is now back in vogue. The same can be said for silver which has been at multi year lows. In recent news releases, reasons for the decline in silver prices were linked to the slowdown in China and the fact that commodities in general have been taking a hit. China is still slowing down as evidenced by the devaluation of the Yuan and the poor Chinese equity market performance. The world equity markets in general have also lost value while gold and silver have been rising. Another notable trend change is in oil prices. Typically oil, gold and silver are correlated due to the pricing of all of these commodities in US dollars. In the last two weeks, oil has plunged to new lows and gold and silver have been rising. On the other side of the argument, correlation does not equal causation. Correlations can also change from time to time and also revert to moving in opposite directions instead of the same direction.
What is more peculiar about this market activity is what the catalysts are for the market reactions. The fact that the markets are valuing a safe haven so strongly is also an indicator that something is not right.
This last Fed announcement on February 11, 2016 indicated that interest rates could still rise in 2016. This caused a fall in the US dollar and oil and a rise in gold and silver. This can be justified in that higher interest rates will slow down the economy further. In every other instance, the buying of U.S. Treasury debt and dollars would accelerate after such an announcement. This time, these instruments were down after the announcement. Has the Fed lost its credibility? If markets continue to signal the way they have over the last week, the answer is a "yes". With the Fed credibility goes the strength of the US dollar. Add to this scenario the fact that more central banks are diving into negative interest rate territory, and you have a contradiction in perspectives. Most of the world is pleading for help in reviving their economies where the U.S. is saying that everything is not only good but needs to be restrained. This does not make sense given that global economies are heavily linked.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.