first majestic silver

Gold Bid Up As Earnings And Economy Bow Out

Market Analyst & Author
October 18, 2015

gold and economyIn rising 1.9% for the week, the price of Gold has now gained as much as $119/oz. (to 1191) since the year's low (1072) in July, a move of +11.1%. There are Gold equities which have increased multiple times that percentage from their respective lows year-to-date, for example Goldcorp (GG) +31% and Yamana Gold (AUY) +83%. But jumping on the Gold band wagon as well is the stock market as we lead with this headline: "The S&P 500 on Thursday recorded its fourth daily gain of better than 25 points in less than three weeks, supported by poor Q3 corporate earnings and a declining Economic Barometer".

Make no mistake about it: stock markets, as is their mysterious wont in being ahead of the curve, espy StateSide Quantitative Easing Part Quatre as lurking out there, and thus the expectations of more play money to ultimately be forthcoming for the banks. Oh to be sure, in just a mere eight trading days come 28 October, we'll again read of the hem 'n haw from within the hallowed chambers of the Federal Reserve Open Market Committee, their bottom line declaring no adjustment to the FedFunds Rate. And unless things start economically a-poppin' out there, 'twill be the same read come 16 December's FOMC pow-wow.

We mentioned a poor Q3 Earnings Season; early as 'tis thus far with just 85 of some 2000+ companies that we'll collect in the books, below in our tracking chart we've put a red box around two key numbers: only 49% of companies have improved their bottom lines over Q3 of a year ago, and the leading plurality for revenue improvement is in the "Worse" category at 46%:

gold chart

Moreover, the revenue declines include those for Bank of America (BAC), Citigroup (C) and JP Morgan Chase (JPM). Add to that group Goldman Sachs (GS) whose earnings declined as well, as did those of General Electric (GE). Not exactly the leadership bunch one necessarily wishes to see faltering out there. ('Course, upon the next QE when again assets are exchanged for FedDough, banks' trading desks can then make it all back up again, non?) And looking further out, Wal-Mart is projecting profits to sag for its fiscal 2017: one might opine Sam Walton's creation has become the whole US and Chinese economy in a nutshell (!) And 'tisn't just the necessities providers patronized by we commoners that are languishing, for the tartanesque Burberry has now warned of declining sales.

We mentioned as well the declining Econ Baro. Naturally you're keenly keeping abreast of the most recent incoming data metrics, including declines in the ISM's manufacturing and services readings; the "unexpected" cratering in non-farm payrolls; declines in factory orders, industrial production, consumer credit, inflation gauges and ex-auto retail sales; and negative levels for both the New York Empire Index and the Philly Fed Index. All whilst the trade deficit increases. What FedFunds rate raise? Here's the Baro:

gold and economy chart

And "dat" trend in these deviant days of bad being good is again boding well for the S&P as per the above chart's red line. 'Course, one must realize that our "live" 35.2x price/earnings ratio for the S&P shall be proven unsustainable, and 'twill unlikely be the "E" in the P/E that doubles, whilst in time the truth of the multiplied money supply "will out" for Gold. And of late, the will to own it has picked up. As the inexhaustible news agency Reuters (now 164 years running this month) just put it: "Gold hits 7-week high as traders bet on US rate hike delay" We'd like to edit the latter of that to instead read "on a seven-fold increase in the US money supply". Stay patient my friends.

Still, Gold has yet to fully meet the four-step technical criteria we've been asserting as to "how we'll know the bottom is in". On a positive note, unless you've been nodding off in the back of class, you know the near-term first step has already been achieved, that of flipping the weekly parabolic trend from Short-to-Long as occurred four weeks ago:

weekly gold charts

Note therein that Gold this past week passed up through the August high of 1170, a level we'd been targeting on this parabolic run, referring to the event in our daily "Prescient Commentary" on Wednesday as a "minor milestone". Then upon further review, we mentally reclassified it as a "wee pebble" in the long, obstacle-laden road up which Gold shall certainly travel to 2000 and beyond.

Indeed in continuing to assess Gold's escape from the bottom, this next graphic incorporates the other three steps we'd like to see achieved, namely price getting above its 300-day moving average, having the average itself turn upward, and seeing a settle above the purple-bounded 1240-1280 resistance zone. The chart spans Gold's daily closes from the 2011 high of 1900 through yesterday (Friday) at 1177:

Clearly there is a lot of near-term work to be done, and although having eclipsed 1170, in turn opening the door to make that run up to the 1240-1280 resistance zone, Gold shan't move in a straight line: the once reliably supportive 300-day moving average has since been a key resistor as is oppressively obvious in the above graphic.

Now 'tisn't just Gold and the S&P that have been on the up move of late, as next we turn to a multi-panel exhibit from the "Everything's Up Dept." Our focus on this reduced-size graphic is not about the actual numerical data, but rather on the up-slanting 21-day linear regression trendlines for all eight of the BEGOS Markets. The panels cover the last 21 trading days (one month ago-to-date) and include the "Baby Blues" that depict the trends' consistencies; ("Spoo" refers to the S&P 500 futures contract):

"But mmb, that means the dollar must be going down, huh?"

A lovely thing, and deservedly so, Squire. Indeed were all fiat-decreed currencies' supplies rightly measured against Gold, their values would in toto be going down. Tick... tick... tick...

Let's now go to our Precious Metals' Market Profiles. A week ago we noted that the profile for Gold on the left "doesn't get much better than this", the yellow metal having since lived up to such billing. As for Sister Silver on the right, she too is positioned high in her profile, albeit somewhat similar to Cousin Copper, she is sporting less underlying foundational support than is Gold:

Thus in stacking it all up, here we've...

The Gold Stack

Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2549
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: 1192
10-Session directional range: up to 1192 (from 1130) = +62 points or +5%
Trading Resistance: 1183-1185
Gold Currently: 1177, (weighted-average trading range per day: 17 points)
Trading Support: 1175 / 1165 / 1147 / 1144 / 1136
10-Session “volume-weighted” average price magnet: 1161
The Weekly Parabolic Price to flip Short: 1084
Year-to-Date Low: 1072

In closing we've these two notes:

1) Notice how "un-October-like" 'tis so far been? Should you swerve past our Market Ranges page at the website, you'll see most of the BEGOS Markets now with narrowing volatility, quite the opposite of what we oft endure in October. Friday's trading range for the S&P was the third narrowest day in two full months. Yet in years past, the S&P has had pummeling days during the Octobers of 1982, 1987, 1989, 1997, 1998, and 2008. Further, month-to-date the S&P is up 5.9%. Still, per our measures of it all going wrong vis-à-vis Q3 Earnings Season and the Economic Barometer, the S&P remains perversely perched. Nuthin' but Fed.

2) 'Course throughout many months of 2001-2002, we had a better than 50% decline in the S&P, (not to mention same in 2008-2009), the former unraveling certainly exacerbated by both "911" and the debacle in high technology equities. That said, just this past summer, of friend of ours quit her tech job and went to Paris for two months. She's just now back and has already found a new tech job. I remarked to her "But jobs are getting very hard to find now". Her reply: "Oh, not in tech!" Which leads us to Twitter and what 'round these parts is referred to as the "Manhattanization" of San Francisco. Below in the two-panel display we've on the left Twitter's San Francisco headquarters, and on the right the incessant building of new towers in the "South-of-Market" high tech area:

Here's the point: Twitter is to let go some 336 folks from its work force of 4,100. This after having moved into the massive art deco building as shown above left which spans almost an entire city block. One wonders if they still really need all those people to do what Twitter actually outputs. And if indeed tech employment is bloated, will those new buildings shown above right all get filled? Think of China and its skyscraper "ghost cities". The San Francisco Bay Area houses the largest Chinese communities outside of Asia, many of whom work in tech. And should tech again wreck...

The consensus for next week's lagging report of September's leading indicators is for negative "growth". But you and I already know that. How about some real "growth" for Gold in clearing its 300-day moving average and moving on up into the 1200s. That's the next goal for which we're looking!

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 melting point of gold is 1337.33 K (1064.18 °C, 1947.52 °F).
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