first majestic silver

Gold And The September Boogie

Market Analyst & Author
September 11, 2016

Gold just completed its ninth up week of the last 13, settling on Friday at 1332. But it did so on the week's ending down note, as afflicted all eight components of the BEGOS Markets complex (Bond, Euro/Swiss, Gold/Silver/Copper, Oil, S&P500).

Blame it on so-called the "dollar strength" being further built since the recent hawkish tone of our own San Francisco FedHead John "The Economy's Good" Williams? Blame it on the so-called "supreme leader" Kim "Neutron" Jong-un? Blame it on the so-called "reserve currency" adjustment looming on 01 October by the International "We Want Yuan!" Monetary Fund? Blame it on the so-called "summer complacency" morphing into September "The Worst Month" of the year? Blame it on the so-called "high valuations" of the stock market's "Look Ma, No Earnings!" enigma? Or might we wrap all of these and other bloomin' blamers up in a big bow and "Blame It on the Boogie..."--(The Jacksons, '78)?

Blame, however, doesn't change the game, and yesterday was a messy day across the BEGOS board. That said, Gold's loss on the day (-0.8%) was notably light compared to that for the Bond (-1.3%), the S&P 500 (-2.5%) and "oh my" Oil (-3.4%). More importantly however, did yesterday remind you of anything?

"Al Gore's famous line about 'Everything that should be up is down', mmb?"

Hardly that, Squire, (and 'twas more infamous than "famous"). Instead, go back to this time eight years ago, and reminisce on this:

Remember that? And more importantly, recall how Gold weathered it all far better than did the S&P? Not necessarily that there's a repeat of which we're about to now see; but 'tis sittin' out there. Just sayin'...

Still, let's focus for a moment on September. Until yesterday, this month had been fairly lackluster for the BEGOS Markets in either direction. That's borne out by a peek at the website's "Market Ranges" page. But then finally -- yes finally -- came a September day that was a September-like day, the S&P going "Arrivederci!" yesterday. And yet September is oft thought of as a good month for Gold, at least in its "up years" as has generally been the rule per this table of Gold's Septembers millennium-to-date:

And notwithstanding the "???" for 2016 in the above table, Gold appears well en route to indeed putting in an "up year" as we turn to the Weekly bars. In fact, Gold's median "maximum gain" for the past 15 Septembers is +5.3%, which applied to August's closing level of 1312 would bring us to 1382; that's just a smidge above Base Camp 1377, again our revised projected high for this year (from 1280).

As for September's being considered the "worst month" for the stock market, 'tis not always so. Whereas Gold has recorded positive net changes in 10 of it 15 full Septembers millennium-to-date, so has the S&P put in eight positive Septembers. That said, without growth in real earnings, the S&P may well have reached a broad-based ceiling such that to raise itself further seems impossible. And ironically, there's a "positive" to yesterday's S&P 50-point fallout: it pulled our "live" reading of the price/earnings ratio down from 37x to 36x. Do that 16 more times (-50 x 16 = -800 points) and, linearly-speaking, the S&P back down at a more rational 1300 would bring with it a bit more rational p/e of 20x, (although we'd still say that's "expensive").

As for the members of the Federal Open Market Committee, any hawkish notion to raise their central bank's funds rate seems impossible as well, at least by the Economic Barometer. Here 'tis:

No doubt about it: that Econ Baro, at best, has been yo-yo-ing right through the summer, with a mild downside tilt. And from the technician's viewpoint, if the trend is one's friend, then that tilt is toward wilt. Dare we thus query: Will wilt will out?

What continues to will out is Europe's version of economic yo-yo-ing. Early in the past week we read of sound services data in the United Kingdom nixing fears of a recession, along with their manufacturing Purchasing Managers' Index sporting the largest month-over-month gain since the measure's inception some 20 years ago. But up with the yo-yo then brings down with the yo-yo, as Germany's factory orders missed expectations (as then did those for the UK), and German exports "plummeted" in July. Watch for those Mercedes year-end clearance sales to come into the affordability zone for yer Aunt Mable and Uncle Bucky: "Wait 'til Prudence sees me drive up in this, Buck!" There goes the neighbourhood.

As for how goes the BEGOS Markets complex, here are the respective daily bars from one month ago-to-date. Every one of the 21-day linear regression grey trendlines is down. But as for the "Baby Blues" -- the dots which depict the day-by-day consistency of the trend -- the two materially rising sets are those of Gold and Silver, as their trendlines "rotate" from down toward up, barring further near-term selling:

In further lauding the precious metals, here are their 10-Day Market Profiles, Gold's being on the left and Silver's being on the right. Gold is centered (white bar) smack in the center of its profile, whilst Sister Silver's overhead resistance appears a bit more daunting; but she does appear bountifully supported with plenty of contract volume having traded at that 18.70 level:

In closing, these two notes caught our eye this past week:

First, as has been widely disseminated, is the bit about the some 2,000,000 El Phāko bank and credit card accounts cunningly created by 5,300 bonus-bent bettors at Wells Fargo, to whom the bank has now said "bye-bye." Those of you who assume your stored physical Gold at Wells is, well, still there, might just want to make a visit to your safety deposit box; whilst on site, you might also peek over the shoulder of the money manager running your portfolio, just to ensure they've not churned out of your Gold equities into something such as described in our next paragraph.

Second, as is part of our routine in maintaining the website's S&P Valuation & Rankings and Moneyflow pages, we have to make a daily check for component replacements within the S&P 500 Index. They occur with a greater frequency than most folks would think, there having been 25 replacements during 2015, and already 26 year-to-date. In any event, when checking this past Thursday, we swerved into a new replacement, not specifically for the S&P 500, but rather for its small-cap index of 600 companies; yet we simply couldn't overlook it. Gone is American Science & Engineering (ASEI) and in its stead: El Pollo Loco. Really? And the stock symbol, as I'm sure are their chicken burritos, is just too good: LOCO. Which is what we deem to be the 99% of the populous that doesn't own Gold. But once they start buyin' some, bring on the salsa, baby!

As noted, the volatile vicissitudes of September are finally upon us. And to further boogie the BEGOS Markets and the Econ Baro comes a new week with incoming data on ex/im pricing, retail sales, wholesale and retail inflation, regional Federal Reserve surveys, plus industrial production and capacity utilization. So as your net worth gets bashed about with September unfolding, even though into October, like the song goes: "Don't blame it on the sunshine, Don't blame it on the moonlight, Don't blame it on the good times, Blame it on the boogie..."But who really cares, if you've got Gold!

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.

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