first majestic silver

Gold Capsizes...Then Surprises!

Market Analyst & Author
February 26, 2017

Gold has been thrice thwarted these past three weeks at the underbelly of the 1240-1280 resistance zone, coming off this last StateSide holiday with price again capsizing back down into the 1220s. But then, 'twas as if our call a week ago to "successfully summon some buyers to come in" was answered.

Cue Gomer Pyle: "Surprise, Surprise, Surprise!" For the balance of the week, Gold raced back out of the 1220s, up through the 1230s, 1240s, 1250s, and into the 1260s before settling yesterday (Friday) at 1258. Good to see that (as penned earlier in the month) "the commitment to Gold is sound through here such that pullbacks in price shall be minimal, the focus instead being upon attempting to drill up into the 1240-1280 resistance zone." And as the above panel shows, eight weeks into 2017 we find Gold 35 points (+2.9%) ahead of where 'twas at the like point a year ago.

Sound commitment indeed as from our "Against All Odds Dept." comes this graphic of the percentage tracks over the last 21 trading days (one month) showing Gold rising ... as is the stock market ... as is the Dollar ... all whilst the trade of FedFunds is firm. Why, that's not supposed to happen, right? 'Tis:

So far so good for Gold in 2017, the year's low trade (1147) coming on day one ... just as it did in 2016 (1061). And no, we've not forgotten that 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. A lovely record to break, 'twould be.

Speaking of lovely, Gold's accelerative push up into the purple-bounded 1240-1280 resistance zone was exactly so. 'Course as far back as 2013, Gold has had a fairly fiery relationship in dating this area. Hopefully the excitement of instead focusing on a return at least to Base Camp 1377 shall once and for all permanently place the following purple lines in the rear-view mirror, their then to fade away below the horizon. That said, Gold intra-year need rise at least 19.5% (from 2016's settle at 1152) to reach Base Camp 1377. In attaining that level last year, Gold was then +29.9%, which begs the question: has Gold ever made an intra-year gain of at least 20% following a year wherein 'twas +30%? Oh yes: in 1979, 1980, 1987, 2007, 2008, 2010 and 2011. So why not in 2017, eh? These weekly bars are purposefully rising at an attractive pace, the blue parabolic Long trend dots now into a six-week stint:

Above we earlier displayed the comparable percentage track of the Fed Funds rate vis-à-vis Gold, et alia. The rate itself settled out the week at 0.70% on the March contract. That is within the Federal Open Market Committee's present target range of 0.50%-0.75%. Not far beyond that range is the June contract's settle at 0.86%, which if the FOMC were to vote for a rate hike would be in their then 0.75%-1.00% range; but the conviction for a hike seems lacking in the trade. On the other side of the coin, non-FOMC member Dr. Loretta Mester (Cleveland FedHead) said this past week she'd be "comfortable" with a rate hike given the pick up in recent inflation data. Add to that gains in Home Sales and an upward revision in the University of Michigan's Index of Consumer Sentiment, and "Jump back, Loretta, the Baro's waitin' for ya":

Still, one wonders if a rate hike, at least come the mid-March FOMC meeting, would be wise given the S&P/Experian Consumer Credit Default Indices issued last Tuesday finding the bank card default rate having hit a 42-month high in January. Nudge that FedFunds rate up another notch and watch the levered effect even further consume the credit card crowd. Ouch!

Meanwhile, the economic Euro Yo-Yo just gave us a surprise of its own, for within the Zone's recovering data one finds France's economy not only expanding at its best pace in six years, but at a rate now exceeding that of Germany.

"Mais, c'est très impossible, mmb..."

Au contraire, mon frère, 'tis true. I see you picked up a little French lingo on that sojourn to Chamonix.

"That's not all I picked up, mmb..."

Let's leave it there, shall we Squire? But curiously, as was the case for the economy last year StateSide, France's economic growth is now ramping up just ahead of April's initial presidential election heat. And in feeling the heat, a proprietary artificial intelligence system devised by the Singapore investment firm Leonie Hill Capital has one Marion Anne Perrine "Marine" Le Pen taking the cake at the end of it all. "Sacrés chats!" Let them eat cake, indeed. Still, ex-the Zone and perhaps moving toward Brexit, 'cross the Channel we find HSBC's profits dropping not just on write-offs, but as well on their main markets' slowing economic growth, whilst to the north, RBS just posted its ninth consecutive annual loss ... and eventually, banks have been known to run out of dough.

Something that shan't never, though, is Gold, for 'tis itself dough. And as the following two-panel graphic shows, on the left across Gold's daily bars for the last three months, Gold's recent strength has kept the baby blue dots of 21-day linear regression trend consistency from making their more normal swinging ebb from +80% to -80%. Then on the right we've Gold's 10-day Market Profile suggestive of sound trading support in the 1230s. All-in-all, quite the healthy picture, especially when you consider price today at 1258 is but 47% of our Gold Scoreboard's US money supply debasement value of 2661, even when accounting for the yellow metal's supply having doubled over the last 37 years:

As for even firmer Sister Silver, per the like graphic below, one wonders if she'll ever see materially lower prices again. In several of our recent daily "Prescient Commentaries", you may have noted we've been waiting like a cat for Silver's "Baby Blues" to crack such as to pounce upon a Short. But you know what they say about standing in front of the train ...... "That can't be good..." Better to grab a pole and ride dem Silver rails:

Sterling stuff, what? Now toward putting a bow on this week's piece, a word on the stock market. The good news is that with Earnings Season for Q4 of 2016 having concluded, by our calculations 60% of almost 2000 companies reporting bettered their Q4 bottom lines of 2015: that is the best year-over-year quarterly improvement since Q2 of 2011. The bad news is (as you well know by now) that the price/earnings ratio of the S&P 500 is by our "live" measure presently 34.2x. "Trump Rally" or otherwise, keep this wee nugget in mind: when the holding of Congress made its storied shift from left to right back in 1994 and the stock market took off like a surface-to-air missile, the p/e then of the S&P was an arguably "expensive" 20x. When the "Trump Bump" kicked in last 09 November, our "live" P/E was just a point lower than present, at 33.2x. Again that supports a Q4 earnings season mostly having kept pace with price ... 'tis just a shame that the Index itself remains double what the actual earnings ought be supporting.

16 metrics work their way into the Economic Barometer in the new week, plus we get the Federal Reserve Bank's "Tan Tome" on Wednesday (01 March). Normally, the month's first Friday (03 March) would also bring us the payroll data as well, however this time round --"Surprise"-- it shan't be revealed until 10 March. That's late ... but 'tis never too late to stack on a little Gold and Silver out there!

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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