first majestic silver

Gold…From Aloof To Stirring to Stuck

Market Analyst & Author
June 27, 2015

That title pretty much sums up the state of Gold in our recent missives. Arising each Saturday at 04:00 Pacific Time to compose The Gold Update is an informative (we hope) labour of love. However, mere hours from now at 17:00 CET in Brussels, the EuroZone Finance Ministers are to meet for a late Saturday incommodious labour of insolvency over the final gasp for Greece to either be aided and abetted, else bared and booted, as in the balance Tuesday (30 June) comes default. And should it indeed go wrong, 'twill be for another Greek tragedy "Télos" (The End). The good news is, given The Aegean region's being the birthplace of Western Civilization dating all the way back to those 3200 BC Cycladic folks on the islands over there, doubtless Greece -- like Gold -- isn't going away.

Nonetheless, cynical folks are reveling in Gold's going the wrong way. To be sure, one cannot help but marvel, perhaps mockingly so with all the monetary uncertainties ad nauseam a-bubblin' (the debt market) and a-poppin' (the Chinese market), that Gold hasn't been going anywhere, especially as regards Greece with the valuation of a major currency -- The €uro -- in the balance. Of course, the market is never wrong, and the Dollar is "oh so strong" ... but c'mon man! Here are Gold's daily settles year-over-over along with its once famously supportive, but these days infamously unsupportive, 300-day moving average:

That's one year. Now let's update the last 35 years, such that we don't lose focus on Gold's inevitably higher end-game. Below we've the percentage track of weekly closing prices of Gold along with same for the increase in the US money supply (M2). The yellow metal is not quite double what 'twas 35 years ago, whilst M2 has better than sextupled. The red line in the chart is the integral measure that we use to realistically "value" Gold today in maintaining its relationship to the debasing money supply, (which despite the cessation of Quantitative Easing continues to grow, given money must be created to pay interest on the debt, and thus total M2 itself is about to surpass the $12 trillion mark). But in maintaining a fair playing field, the red line accounts for the fact that the supply of Gold, too, has increased (almost doubling over the 35-year period), thus our "value" for it has only tripled rather than grown six-fold with M2, all to which yields our opening Gold Scoreboard "value" today of $2,513/oz:

The bottom line is our reiteration that by this measure alone: Gold's having settled the week yesterday (Friday) at 1174 keeps it priced roughly at half its "value", whilst the S&P 500 ought be halved to get it in line with its earnings "value", (the price-earnings ratio at this writing being 35.1x via our cap-weighted trailing-12-months calculation).

"But like I said last week, mmb, the economy is rising and is really on the move now..."

Duly so it "appears" there, Squire. And one has to think the Federal Open Market Committee members must be feeling relieved that they can go with a rate hike such as to maintain credibility. Here's how the Economic Barometer is now poised ahead of a substantial, albeit holiday-shortened week, for incoming Econ Data which includes June's Payrolls...

...and we emphasize the above word "appears", for if Q1 was underdone such that Q2 is overdone, one may well anticipate it all coming undone. Can the new employment paradigm of part-time jobs keep it all cobbled together? Can the median retirement account balance for folks aged 55-to-64 years of $103,000 get them to their nifty 90s? Can the US support Greece, (and then Portugal, Ireland, Italy and Spain ... and then France?) No, we shan't get carried away (at least not to the loony bin) just yet. But at the same time, as we oft chime, 'tis the creation of dough that ultimately makes Gold go (tick ... tick ... tick ...)

That said, Gold is all but ticking these days; rather 'tis sticking as if in a daze. 'Twas just a week ago that we were finally seeing signs of Gold stirring, its "expected daily trading range" beginning to increase. But now, to use the modern vernacular, "Not":

And that trading range compression as shown above is not friendly to the tilt of a parabolic trend, which in this case remains long, but with little wiggle room as we turn to Gold's weekly bars. With the rising blue dots in ascent toward Gold's sideways trend and price at 1174, an intra-week dip through 1161 as shown below would flip the parabolic trend to Short yet again:

One gets the impression that Gold has been covered with an enormous tarpaulin, the four corners of which are held down by thick iron stakes driven deep into the ground. 'Tis as if we're waiting for the Bond to crack, the S&P to crack, the €uro to crack, and QE to come back -- lest Gold also crack by a Dollar attack -- and The Black Swan comes back, rising up in another wholesale crack-up.

As for the nearer-term picture, all three of our BEGOS Markets Metals remain in downward 21-day linear regression trends, Gold (left) by the level of its "Baby Blues" -- the dots that define trend consistency -- being in the least state of decline. And isn't it interesting: the stark leap of the prior week, (credit the Greek picture turning bleak), having returned replete. (And now by the wall clock, "they're" just about to re-meet as we speak). It ought be an interesting set of markets that we'll greet in the new week:

Next we've the same metallic triumvirate, this time from their 10-day Market Profile perspectives. The longest bars represent those prices with the largest concentration of contract volume; the coloured swaths depict the range of the most recent trading session (Friday), and the white bar is each market's settle:

And now with mid-year in the balance (or lack of such) next week, here is the stack:

The Gold Stack
Gold's Value per Dollar Debasement, (per our opening "Scoreboard"): 2513
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
The Final Frontier: 1800-1900
The Northern Front: 1750-1800
On Maneuvers: 1579-1750
The Floor: 1466-1579
Le Sous-sol: Sub-1466
Base Camp: 1377
Year-to-Date High: 1307
Neverland: The Whiny 1290s
Resistance Band: 1240-1280
The 300-day Moving Average: 1238
10-Session “volume-weighted” average price magnet: 1184
Trading Resistance: 1177 / 1186 / 1202
Gold Currently: 1174, (weighted-average trading range per day: 13 points)
Trading Support: 1173
10-Session directional range: down to 1167 (from 1206) = -43 points or -3%
The Weekly Parabolic Price to flip Short: 1161
Year-to-Date Low: 1142

Finally, we'll leave you with this from the "Public Perception Dept":

I was conversing the other day across the counter with a local barista (her following comments italicized) who upon hearing that I write about Gold, excitedly said: "Ooh, my boyfriend has a, uh, how do you say it, uh, a kookooran?" ... "You mean a Krugerrand?" ... "Yeh! Yeh! A kookooran! And we're thinking we should sell it, so should we?" ... "Why would you want to sell it?" ... "Because it's going to go down!" ... "No I wouldn't sell it; I'd wait 'til Gold's around 2000 and then think about selling it." ... "Really? So where is it now?" ... "Around 1200." ... "Oh really? Oh wow! Oh that's great! Oh here's your mocha!"

Multiply that perception by millions of minds and that's why Gold is stuck!

Oh dear: it just now says "EuroZone finance ministers reject Greek request for one-month bailout extension". And heaven forbid Saturday evening dinner at Brussels' La Maison du Cygne be delayed any further. The question is: shall the Cygne turn noir?

Mark Mead Baillie

Mark Mead Baillie has had an extensive business career beginning in banking and financial services for two years with Banque Nationale de Paris to corporate research for three years at Barclays Bank and then for six years as an analyst and corporate lender with Société Générale.
For the last 22 years he has expanded his financial expertise by creating his own financial services company, de Meadville International, which comprehensively follows his BEGOS complex of markets (Bond/Euro/Gold/Oil/S&P) and the trading of the futures therein. He is recognized within the financial community of demonstrating creative technical skills that surpass industry standards toward making highly informed market assessments and his work is featured in Merrill Lynch Wealth Management client presentations.  He has adapted such skills into becoming the popular author each week of the prolific “The Gold Update” and is known in the financial website community as “mmb” and “deMeadville”.
Mr. Baillie holds a BS in Business from the University of Southern California and an MBA in Finance from Golden Gate University.

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.
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