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Gold…Our Mid-Year Down-Date

Market Analyst & Author
July 4, 2015

Are we having fun yet? There is quite a bit of fun here State Side today as we celebrate our having completed 239 years of Independence, (to the chagrin of those amongst our nation's riffraff who try to wrest it away from us). However for Gold, rather than having had fun, 'tis been an ever-so excruciating run (or lack thereof) thus far in 2015, let alone over the last few years.

Given all that we've herein detailed week-in and week-out, whether 'tis been on currency debasings, catastrophic debt loads, countries' dilemmas both fiscally and politically, if not geo-politically -- just to name a few of the positives out there for Gold -- the Precious Metals' inability of late to materially go anywhere, let alone aggressively higher, borders on being bizarre, indeed unscriptably so. 'Tis beyond baffling, to wit our analogizing a week ago that Gold is covered beneath a nailed-to-the-ground tarpaulin. Price has become sufficiently compressed such that 'tis if some giant entity has wrapped its mammoth arms around the entirety of the Gold trade and is saying "Nope, you can't touch it, so get outta here and go play 'Pretend Wealth' with your worthless paper!" In a world evermore whacked, Gold these days ought be well-jacked, rather than covertly cracked.

And cracked this past week was Gold's parabolic Long trend. Here at mid-year with 26 trading weeks in the books, (this from the "You Gotta Be Kiddin' Me Dept."), Gold has been in a weekly parabolic Long trend for 13 of them, and as well in a weekly parabolic Short trend for the other 13 of them, but hardly does it "feel" equally so, non? Further, because the chart of Gold's weekly bars spans a full 52 weeks (one year) -- and as we now see with a fresh new rightmost red dot heralding the beginning of another parabolic Short trend -- clearly the periodicity of the red dots across the chart is greater than that of the blue dots. And through it all, the tilt of the dashed line (linear regression trend) is down:

That stated, should the number of red dots in this fresh parabolic Short trend turn out to total less than the number of blue dots (seven) in the now-ended Long trend, 'twould be the first such occurrence since the nine-week Long run during 2011 from 10 July through 16 September, during which span Gold rose as much as 379 points (+24.5%) in reaching its All-Time High of 1923 on 06 September of that year. The stats in the above graphic show the new level to flip Gold's weekly parabolic trend back to Long is 1232, a number which will decline by the week until 'tis eclipsed by price. We're that to occur at say, 1200, and Gold then embark on a parabolic Long trend to exceed the number of weeks of the current Short trend for the first time since 2011 -- and do so in similar percentage-gain style -- we'd have price nearing the 1500s. Perhaps just a little Fourth of July fireworks folderol there, but by our reasoning, an inevitable pricing area to be had en route to the indubitable 2000. A lot to take in, all that, but 'tis better to be forward-looking than dwell upon that which has passed.

Now with respect to this year's balance for 13 weeks of both Long and Short parabolic readings, as noted they don't "feel" equally so, for Gold indeed is marginally lower (-1.3%) year-to-date as we next see here in the 2015 BEGOS Markets Standings...

...and yet the two leading markets are the Swiss Franc and the Bond, into which dough naturally flows during times of monetary and economic disruption. "Flash! Gold used to similarly benefit!" And you can stuff the so-called "Dollar Strength" defense: the Dollar Index (96.290) just completed its 16th week (since that beginning 16 March) of its own parabolic Short trend following the level having peaked at 100.785 on 13 March. Our bet is that you've not seen that parabolically put from the FinMedia:

"But that's nuts, mmb, I mean that gold isn't moving up with the dollar going down..."

Ah, Squire, 'tis just a subtle reminder that Gold plays no currency favourites. And with Greece in the balance these next few days, should the €uro go "uh-oh", Gold could well, indeed ought well, get the bid, should break out all hell.

"But mmb, then they'll say that rising interest rates will mean that gold won't go up..."

Squire, forget not the three-year stint from 2004-2006 when the Fed Funds Rate rose from 1% to 5% whilst Gold rose right alongside from 402 to 638 (+59%). Listen not to that which they say; rather watch that which actually unfolds. We attest; you digest.

That said, now at the mid-year frontier, let's next look back a full year at Gold's daily closes vis-à-vis its smooth pearly valuation line which regresses the yellow metal's price movement to those of the primary BEGOS Markets (Bond / Euro / Gold / Oil / S&P). And as you can below see, the price compression has become so inhibitive since April, (the mild downside bias notwithstanding), that Gold has lost any and all of its accustomed alacrity; notably in the oscillator (price less value) at the foot of the graphic, Gold is all but flat-lining:

Moreover for the Gold Bull, one might say we've depression borne of compression as the "expected daily trading range" (EDTR) chart we've been presenting in recent missives has its daily magnitude of movement down to a wee 12.6 points:

Further expression of price compression is below evidenced in the two-panel chart, where on the left we've Gold's daily bars for the last three months along with the baby blue dots that depict the consistency of the 21-day linear regression trend. Note how the "Baby Blues" have themselves flat-lined right on their 0% horizontal axis: Trendless! And on the right we've Gold's 10-day Market Profile showing only tepid support at 1164, the overhead trading resistors being 1173, 1177, 1183 and 1200:

One more concession to price compression, given 'tis month's end, is in our year-over-year view of the percentage tracks of Gold versus several of its equities brethren, namely the Gold Bugs Index ("HUI"), Newmont Mining ("NEM"), Goldcorp ("GG") and Royal Gold ("RGLD"). And as you can see, Gold appears all but flat in comparison to the elasticity of the equities:

Now to the ongoing, indeed seemingly endless, ugly bit: Gold's pricing structure per our definitions since the All-Time High, the fourth anniversary of which is merely two months away. Four years of angst without warrant for thanks:

We'll wrap up our mid-year edition here on this celebratory day with a peek at the Economic Barometer, especially given the dose of data it received late in this holiday-shortened week. The rightmost dip you see was produced by the decline in June's Non-Farm Payrolls from the May period, which of its own accord was revised lower, and the overall consensus for June having been missed. The same occurred for May's Factory Orders: they were lower than those for April, which in turn also were revised lower, and again the May consensus was missed. A small dip in toto perhaps, but on one of the Federal Reserve Bank's most watched data metric, jobs:

Finally, we'll leave you with this headline from the past week courtesy of the FinTimes: "Eurozone inflation dips but price pressures remain weak." Should not "but" be "as"? Yet then again: should not Gold be 2000+ rather than 1168? "Strange days have found us..."--(The Doors, '67)

Happy Fourth! May Gold from mid-year move forward!


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.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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