Gold Comatose Whilst Stocks Overdose

Market Analyst & Author
May 12, 2019

In a sense in sequel to that which we penned a week ago ("Gold Sits On Its Box Whilst The Herd Chase Stocks"), Gold remains lifeless as another week passes, although the balance of the herd finally is paying the price for overdosing on their stocks vice.

Gold for its sixth consecutive trading session settled yesterday (Friday) in the 1280s at 1287. The prior five closes back through a week ago were 1285, 1282, 1286, 1282 and 1280. Gold's "expected daily trading range" is now just 10 points and the "expected weekly trading range" down to a lowly 23 points, essentially the narrowest in at least the last five years. Comatose indeed has become our Gold.

So in again quoting Dean Martin per the namesake of the '62 film "Who's Got the Action?" --(Paramount Pictures), here's the answer: the Bond, Copper, Oil, the Swiss Franc (remarkably sans Gold), and stocks as measured by the S&P 500. All five of these BEGOS Markets are seeing their trading ranges expand. And as for performance, the S&P just put in its worst week of 2019 with a 2.2% decline (-64 points). Overdosed indeed became the herd on the S&P.

'Course as is widely being reported, the demise in stocks is solely due to increasing from 10% to 25% the StateSide tariff on some $200 billion worth of goods imported from the People's Republic of China. Nothing to do with the S&P 500 remaining vastly overvalued per our "live" price/earnings ratio of 30.4x (as identically at present is Bob Shiller's cyclically-adjusted p/e); nothing to do with the still frothy nature of needing just $360k to move the S&P one point, (the year-to-date average being $649k); nothing to do with (as we herein saw a week ago) the S&P then year-to-date being unsustainably +17.5% through just four months. Nope. Tariffs on China is the catalyst to finally sell stocks, (and some might politically opine, another chance to get Trump).

Fact is, because "Serious Investors Read Barron's", you already know all this. Here's a portion of their intelligentsia blasts from the few days just past:

■ Dow Gains 103 Points Because China Might Still Want a Trade Deal
■ The Dow Rose 2 Points Because of the Trade Tug-of-War
■ Dow tumbles nearly 400 points after Trump claims China ‘broke the deal’
■ The Dow Is Down Just 119 Points Because Trump Says China’s Xi Wrote Him a ‘Beautiful Letter’
■ The Dow Drops 139 Points Because No One Knows What Happens at Midnight
■ Dow Falls 338 Points Because There Is No Urgency on Trade
■ The Dow Rose 114 Points Because the Market Agrees There’s No Rush for a Trade Deal
■ Dow Drops 2.1% as Tariffs Unexpectedly Return

Got it? Great.

Meanwhile, the good news given Gold's comatose state is price's inability to fall despite the weekly parabolic Short trend having now completed its 11th week. As we below see per the rightmost bars, price remains pretty much perched upon the top of The Box (1280-1240) as if on a fence, inefficiently watching the financial world gyrate in all directions:

"But, mmb, with all this 'gyrating', what's it gonna take to move gold up?"

Squire, that is basically is the question of the last several years. One thing we've learned about Gold with respect to geo-political events such as this China tariff tiff, price will swiftly rise ... and then within days come back down to where 'twas pre-event. Thus perhaps the Gold trader of today has become wise to that. Rather, at the end of the day as has always been given the foundationless modern monetary case, Gold shall eventually catch up to currency debasement. 'Tis what is does. 'Twill so again do. Just don't be caught out when it does so anew.

Which brings us to our broad view of Gold by its daily closes since the highest ever at 1900 on 22 August 2011. And really from 2016 onward, the chart suggests the rampant selling from 2011 through 2015 has long been completed, that price since is simply basing with an upside bias, and given the bazillion factors working in Gold's favour (the most notable being the Gold Scoreboard's valuation for price to be 2864 right now), rationale points to Gold's taking off. To wit:

Are the sovereigns selling? No. Are the hoarding bunkerneers dumping? No. Is China buying? They're on a spree. So is India. And if amongst your activities whilst scoring at home you've linearly projected the StateSide money supply by its M2 measure, you find it crossing above the $15 trillion milestone in late March of next year, (or even sooner should Quantitative Easing resume ... on verra). Taking all of that into account, here's the graphic, highlighting its key nearby levels, the most important of course being the green line at Base Camp 1377:

As for the Economic Barometer, although its inputs for last week were few, they were enough to tip the trend lower once again. April's inflation readings at both the wholesale and retail levels markedly softened. Moreover, March's Consumer Credit fell by the most for that month since 2013. No credit? No consumin'. Here's the Baro:

Now as comatose as Gold may seem, we see a couple of technical positives in turning to our two-panel display of price's daily bars for the past three months on the left and the 10-day Market Profile on the right. First, there's Gold's "Baby Blues" which in their current climb have nearly reached the 0% axis, meaning that the consistency of the recent price downtrend has virtually vanished. Second, per the Profile there is fat trading support in that 1285-1283 apex, the wee safety net being below at 1273:

But as seems usual for Silver, her case is not as robust, hence the Gold/Silver ratio at this writing being nearly at an historically high reading of 87.1x. Per Sister Silver's "Baby Blues" (below left), although the downtrend's consistency is breaking apart, the dots are messy at best. And by the Profile (below right), unlike the yellow metal sitting above trading support, the white metal finds herself below the 14.95 resistor:

In sum, comatose Gold had barely moved in the stack since 'twas last presented three missives ago:

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2864
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
Gold’s All-Time Closing High: 1900 (22 August 2011)
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
The 1360s Double-Top: (1362 in Sep '17 and 1369 in Apr '18)
2019's High: 1349 (20 February)
The Weekly Parabolic Price to flip Long: 1315
10-Session directional range: up to 1293 (from 1267) = +26 points or +2.1%
Neverland: The Whiny 1290s
Trading Resistance: none (per the 10-day Market Profile)
Gold Currently: 1287, (expected daily trading range ["EDTR"]: 10 points)
Trading Support: 1283 / 1273
10-Session “volume-weighted” average price magnet: 1282
The Box: 1280-1240
The 300-Day Moving Average: 1271 and falling
2019's Low: 1267 (02 May)

Next week brings a bigger dose of data for the Econ Baro, notably including a consensus drop for April's Retail Sales, (no surprise given the aforementioned drop in March's Consumer Credit). And weaker economic data is supposed to be positive for Gold. Does it thus awake from its comatose state?

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.

In 1792 the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation's currency - with gold valued at $19.30 per troy ounce
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