Gold Starts The New Year Stuck In First Gear

January 8, 2017

'Course, a year ago, gold perfectly timed its clutch bite in getting off the line to swiftly shift up through the gearbox toward posting a net gain of 4.5% through the first four trading days of 2016; but now through the same four-day stint of 2017, gold's net gain is just 1.8%. Whilst any four days over a year's trading circuit might at best be considered "noise", these initial sessions oft set the tone as to how the balance may unfold: Gold's engine may seem screaming at high revs, but in first gear, we're not impressed.

At least off the starting line for this year, gold is adhering to its first goal: 'tis not tanking, albeit "past performance" suggests (as we'll below show) that we've not already seen the entire year's low, which indeed was the case by this time a year ago.

As for gold's second goal in 2017 toward making another attempt at the 1400s, the battle to so do shall again ensue upon trying to clear the terribly stubborn 1240-1280 resistance zone; thus neither do we believe the year's high is even close to being in place.

But as for the referenced "past performance", recall in 2016 that gold's low for the entire year came on Day One; and so far, such is the same case these mere four days into 2017. Yet in the 42-year span from 1975 through 2016, gold's low for the year has come on the first trading day just three times, and never in two consecutive years. Good old-fashioned probability therefore suggests, vis-à-vis a year ago, gold unlikely has not already seen this year's low (1147 on Day One).

So given the likelihood that neither of this year's extremes are as yet in place, does that mean we all ought rush off to the commodities broker and open two discrete accounts, one Long with gold futures and the other Short with same? The broker would certainly croon "Love me two times baby.."--(The Doors, '67). No. Best to think higher gold in 2017, but with prudent cash management throughout.

Still, by gold's weekly bars, the picture is appearing more promising, price having made "higher lows" for three consecutive weeks, along with "higher highs" in the last two. With price having settled yesterday (Friday) at 1173, gold is now "only" 47 points below the declining red parabolic Short dots: we say "only" as that is the nearest weekly closing distance of price-to-dot during this 14-week down run. Gold's "expected weekly trading range" is presently 39 points; thus barring "The Tank", the parabolic trend appears poised to flip long before month's end:

But by broader perspective, gold needs to attack its 300-day moving average, which as we next see is up there at 1225 (and imperceptibly falling). Given gold's fabulous run through mid-year 2016, 'twas most discouraging to see price then negatively penetrate the average which throughout this millennium has been a both a key technical supporter of price, but also a barrier to higher levels as we here see in charting gold daily closes from its highest ever-to-date:

As for reacting to the economy, gold did not fold on the Federal Open Market Committee's minutes from their 13/14 December meeting (as released this past Wednesday), which were supportive of the growth we've been seeing in the Economic Barometer; that said, the FOMC is not being overly economic-optimistic, and indeed, the Baro has since stalled to sit were 'twas a month ago. This past week we learned that December's Payroll creation slowed and that layoffs were up some 42% over those of December a year ago, (add to which Macy's is to let go some 10,000 folks), whilst November's Factory Orders fell 2.4% and the trade deficit widened. Here's the chart:

Neither has gold been on hold even as another record high for stocks doth unfold. Now on the cusp of Q4 Earnings Season, we've the "live" Price/Earnings ratio for the S&P 500 at 34.7x. (In fact, MarketWatch ran a "similar" calculation to ours and came up with 25.9x, excluding 2017's rally. We get essentially the same number if we cheat by including negative P/Es for losing companies -- i.e. dumbing the average down -- rather than properly assigning the price of those losing companies as their P/Es. Scary, that). In any case, by their percentage tracks over the past 21 trading days, gold has been closing its gap to the S&P:

In fact as we turn to trend, the following two-panel piece displays the daily bars over the last three months-to-date for both gold on the left and Silver on the right. In both cases, the baby blue dots depicting the day-by-day consistency of the respective 21-day linear regression trends are back into ascending mode. Fade not the directional clues from the "Baby Blues":

Specific to near-term pricing, these next two panels are the 10-day Market Profiles for gold (left) and silver (right). The horizontal bars reflect the amount of contract volume traded per price point, the labeled apices therefore guides to support and resistance; the white bar in each panel is yesterday's settle:

So compared to a year ago, we've a somewhat modest, albeit positive, start in first gear for gold in the new year. By way of which we segue to these few notes in closing our first missive for 2017:

■ Better to be off the line in first gear rather to have missed the shift gate and clanked it into reverse, banging backward in to the burgeoning bitcoin. Yes, the Bitster is back, its fueling being credited by that which normally ought be turbo-boosting Gold, i.e. "global currency turmoil". Indeed with the Dollar mute out of the new year's chute, China's Renminbi just sported it largest ever two-day gain, the Yuan's noose being tightened whilst service sector data strengthens. But has one bit off more than one can chew?

■ The Euro Yo-Yo is spritely spinning up its string, the Zone closing out 2016 with its best rate of economic growth since 2011, coupled with inflation's best pace since 2013. But from the "It Ain't Broke But Let's Fix It Anyway Dept.", EuroZone political uncertainty abounds, not to mention that surrounding what the European Central Bank may do. Our beloved France, (having just legalized going off-line from work when the day is done), takes its turn in perhaps also surprising the world with its next President come 07 May, (barring a majority winner on 23 April). Might we see Frexit? Then on the heels of Italy's Renzi having resigned, might we see Italexit? Some expect it. And way up there in Finland, 2,000 unemployed folks shall now be raking in €560/mo. sans questions. At least the steely-eyed Finns have their Gold repatriation notion.

■ Meanwhile over in "neutral" Basel, the "Committee" has put off its vote toward on "Basel III" for banks' capital requirements; one ought think this brings a massive sigh of relief for the likes of Crédit Agricole, Deutsche Bank, and dare we say Monte dei Paschi. To be sure, the less capital required, the more reason to own Gold.

■ Finally, as we're quite sure our British friends are aware, you've until 16 October to cash in your old £1 "round pound" coins for the new dodecagonic version. We rue the day we were caught StateSide with scads of now valueless French Franc coins, (having later at least made to the Banque de France in Nice to unload paper notes). But perhaps upon a Frexit, the coins can again be used? ("Mais non, monsieur"). At least coins of Gold never will be valueless!

www.deMeadville.com
www.TheGoldUpdate.com

A one-ounce gold nugget is rarer than a five-carat diamond.