Turkey is in (continued) currency crisis. CBRT (Cent Bank Repub Turkey) has allegedly run dry of its FX reserves to prop up the lira, which has has been hitting all time record lows vs USD & EUR. As USDTRY broke through the psychological 7 level (and doing so against a weakening dollar at that) in July, CBRT more or less threw in the towel in defending the peg, and began buying up gold. So much so that Turkey overtook Russia as the largest buyer of gold in the world - obviously contributing to gold’s run through prev all time highs, 2k and beyond. As CBRT bought gold at a seemingly price indiscriminate pace, Turkish citizens holding lira and seeing their purchasing power get eroded away by the day and facing double digit inflation moved their assets in to anything other than the lira to preserve value - such at BTC. Unlike BTCUSD, BTCEUR, BTCJPY etc, BTCTRY is at all time record highs for this reason, and BTC’s July-Aug rally has also been supported by this reason.
The lira meltdown and horrendous monetary policy mismanagement has also obviously been killing the Istanbul stock market, as well as US listed Turkey ETF TUR.
Late last week, CBRT finally took steps to tighten credit conditions to local banks - and although nowhere near a sufficient solution, it put a temporary halt on the sell Lira → buy gold, silver, bitcoin, dollars, yen trend, and reversed its sentiment. And when the largest buyer of gold in the world stops buying after pushing prices to all time highs, gold falls, and when gold falls from all time highs, profit taking from record GLD inflows takes hold.
Though I bought puts on gold last week in light of developments in Turkey (which NOBODY is discussing, and therefore perfect - let consensus overlook and talk the usual nonsense explanations for market behavior), I’m not going to short gold on a temp pullback, any more so than I would short BTC for a near term downside view within a longer term bull view.
Instead, play the reversal by going long TUR. Buy (very cheap) calls for immediate term upside recovery, which for the time being should move inverse to gold.
Keep a very close eye on USDTRY breaking above 7.4 or below 7. And note the CBRT policy meeting later this month (Aug 20) for a potential inflection point for current trend to reverse again, and gold to continue upside.
Comment
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Gold & Silver midday rally - head fake?
Before rushing in, take cues on price action by WATCHING THE TURKISH LIRA
(intraday chart ↓)
And yes, TUR still trades inverse, correlation still holds. And so I don't have to keep repeating the same replies to the comments (which you should read each others) - • I AM NOT BULLISH TURKEY • I AM NOT BEARISH GOLD, SILVER OR BTC, AND EVEN IF I WERE, I WOUL D NEVER ACTIVELY SHORT GOLD, SILVER OR BTC - EXTREMELY HIGH RISK VS REWARD • PURPOSE OF THIS CHART/POST = I'VE IDENTIFIED A MAJOR UPSIDE DRIVER IN RECENT GOLD, SILVER & BTC RALLY THAT'S BEING OVERLOOKED → TURKISH LIRA CRISIS, PRESENTING A TEMPORARY AND UNIQUE INVERSE RELATIONSHIP BETWEEN GOLD/SILVER VS TURKEY EQUITIES (US LISTED ETF: TUR) • THEREFORE, IF YOU WANT TO PLAY THE SHORT TERM TEMPORARY REVERSAL IN GOLD/SILVER RALLY WITHOUT TAKING THE RISK OF SHORTING GOLD/SILVER, YOU CAN GO LONG TURKISH EQUITIES AS AN INDIRECT PROXY
I don't care about the near or long term fundamental outlook on Turkey, positive and negative, that isn't related to CBRT and their rate policy, their gold buying, their FX reserves. I also don't care about headlines such as this: "Erdogan says Turkey will exact 'high price' for any attack on vessel" ...even if it moves the market direction, as long as the inverse correlation is intact (which it is - USDTRY, Gold, Silver move directionally in line, TUR moves inverse). The entire point is the correlation, not directional call. Correlation breaks down, then this idea is no longer relevant/useful. For now, its extremely useful as watching USDTRY would have told you not to chase gold and silver's sudden +10% jump (or, will tell you when such a move is real).
Gold saw 2080 and and dropped down. Based on Elliot did gold completed its rise? Can it pass 2080 ?
OrcChieftain
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Thank you for your excellent in-depth analysis. I will check on some TRY charts and see if I will act upon it or not. My only concern would be that Turkey is taking more than it can chew. Greeks declared the highest state of emergency two days ago and activated their fleet to repel Turks. I wonder how fast this can escalate if it is going to. Do the USA still continue the joint exercise with Greeks?
OrcChieftain
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@greenmask9, Ok, it still escalates. Just reading France is sending their air forces to Cyprus. And EURTRY already up almost 2% this early. I don't think I will be joining you with short anytime soon. I don't like when there is too many news, that takes my attention from technicals too much.
acrossthespread
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@greenmask9, thanks for the comments. So again- this post is not a long/bullish BST100 call, nor a bull TRY call. Not even a short gold/silver/BTC call- my core longer term view is bullish gold silver BTC and USD vs TRY, SPX vs BST. Shorting gold, silver and BTC is a very dangerous trade that I personally will never put on, not worth the risk/reward (ever) as you’ll never realize the +100% max gain on shorting (as these will not go to literal zero), and conversely they can explode upwards as per recent.
What I’m saying in this post is that IF one were interested in playing the reversal of the gold rally without actually shorting gold, you can go long Turkish equities as a proxy to shorting gold, given the high inverse correlation setup between gold & BST100/TUR. And to do so by buying calls on TUR (put/call ratio for sept expiry is >40, insanely skewed). TUR sept 20 delta calls are (were) extremely cheap, TUR -20% in 2~3 weeks reversing +8% in 2 days as gold and silver plummet.
So while I am (was) directionally bearish gold silver BTC in IMMEDIATE term (days ~ weeks) and bullish in the near~long term, my personal directional call isn’t as relevant to this post as the inverse correlation. As long as that inverse relationship between Turk equities & gold holds (which it is) regardless of market direction, it gives me cues on gold, silver BTC for when to close out the reversal trades (puts on gold, calls on TUR) and potentially when to add to long gold silver BTC. This is about relative under-the-radar cross asset market correlation, not direction.
So with regards to headlines over Greece, that only concerns me to the degree that it impacts the inverse correlation. If Turkey vs Greece specifically pulls BST100 & TUR ↓ while gold ↓, then yes it will change my use of Turk equities as a short gold proxy as the correlation no longer holds. But it seems for the time being, financial markets (BST100, TUR, USDTRY, EURTRY, BTCTRY, Gold, Silver) are more reactionary to Erdogan & CBRT rate policy commentary/actions. Look at an intraday chart of BST100 vs gold, as well as gold vs USDTRY.
acrossthespread
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As far as geopolitical impact on markets go, escalation in Turkey vs Greece while troubling, isn’t anything particularly shocking and new, and I don’t expect these headlines alone to cause a sell off in Turkish equities and inflows to gold, certainly not to the extent that CBRT rate policy and FX supportive actions (or lack thereof) have. All eyes on USDTRY levels and CBRT on aug 20 - if (and when) they don’t hike rates, you’ll likely get new lows in TRY reigning the rally in gold and sell off in BST. Something like Trump/US pull out of Kurd support in Syria last oct is a shock shift that impacts markets- during that time Turkish equities sold off -15% while gold +5%. And 2020 YTD until recent TRY meltdown, Turkey outperformed global equities including SPX on both domestic retail and foreign support. The recent -20% while Nasdaq hitting new record highs and massively imbalanced put/calls shows turkey as near term severe sell pressure such that even a stabilization of USDTRY (let alone a reversal) is enough to turn TUR/BST positive. And in the same way, CBRT as largest gold buyers in back half Jul-beg Aug pushing gold to new record highs simply slowing rate of gold buying was enough to open the window for gold selling to take hold
OrcChieftain
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@acrossthespread, Thanks for the reply. I agree the Greco-Turkish dispute isn't new at all. But as someone who isn't expert on these matters, I prefer to stay out or take intraday trades at maximum. I followed you though. Looking forward to your future analysis :)