first majestic silver

Gold Firms As The Euro Squirms

Market Analyst & Author
March 13, 2016

Gold settled yesterday (Friday) at 1251, down a scant nine points for the week. But not before being boffed all about the 1240-1280 resistance zone, trading exacerbated by currency disruption induced on Thursday from the European Central Bank, and not unexpectedly so, our having penned a week ago the ECB "certainly to announce further accommodation". We first below go to Gold's weekly bars -- the rightmost showing a full tracing of the purple-bounded resistance zone -- and then second to the ECB:

If you feel Federal Open Market Committee policy statements are exciting, (but you have a tendency StateSide to sleep in), then you really missed all the follies from the ECB on Thursday: fairly dramatic stuff, one has to say. At 04:45 Pacific Time, the ECB issued their Monetary Policy Decision for flat-out (if you will) "balls to the wall" monetary accommodation, by delving deeper into their NIRP (that's the insider's new cocktail buzz word for "negative interest rate policy"), and practically matching what was the Federal Reserve Bank's QE III monthly asset purchases at €80 billion. Goodbye Euro, right? Wrong: for 45 minutes hence at 05:30 came Master Mario himself, inferring "we're done". Hello Euro. And with Gold in stride, here's how it all firmed and squirmed during the four-hour stretch on Thursday (from 04:00 - 08:00 Pacific):

From what initially appeared as "savage" (Reuters) to an ECB "bazooka" (FinTimes) saw the Euro make one of its greatest intra-day whirl-'rounds ever: 'twas the seventh largest percentage low-to-high move (+3.668%) in its storied 3,759 trading-day history (since 02 April 2001). And so the merry-go-round of the bow-wow currencies had quite a spin for the week, the Doggie Dollar leaving with its tail between its legs. The modern-day faux doughs really have morphed into celebrity status: one day yer in, the next day yer out --'tis best to be with Gold throughout.

And there's more about which we ought spout: recall in our prior two missives the concern over the lack of substantive moneyflow in concert with the rising stock market? Well, we're now pulling the big red flag even higher up the pole: yesterday the S&P 500 gained 33 points; but moneyflow was supportive for a gain of only 22 points. Unsustainable. So here again is the updated quarterly difference of the S&P's change to that of its moneyflow (-268 points lacking):

Thus: today's S&P level of 2022 - 268 = 1754. 'Course, we oft put forth that "change is an illusion whereas price is the truth". And the truth of the S&P being at 2022 -- with our price/earnings ratio at 39.1x -- is truly dangerous. (Further, on Wednesday 09 March in one of those silly-entitled pieces "5 Things to Know About This Bull Market on Its 7th Birthday" [Time], not only was the article's web page sufficiently cluttered so as not to be able to suss out the "5 things", but nary was mentioned the S&P's being twice the level of its earnings support. Useless).

All that said, as we turn to the S&P within the context of the Economic Barometer, clearly the worst must be past, non? Brings to mind that 1975 Elvin Bishop tune: "Sure feels good feelin' good again..."

"But it looks like your Baro has actually pulled back, mmb..."

A wee reversal there this past week, Squire. Not much data came in, although of note, the change in Consumer Credit for December was markedly revised lower from $21.3 billion to just $6.4 billion, the lowest reading since July 2012, with the change for January ($10.5 billion) the smallest since July 2013. Also, Wholesale Inventories stacked up instead of being moved out. Baro negatives are these. Moreover, we shan't think the FOMC dare make any move come their policy statement this Wednesday (16 March). Why, even the ever-efficacious Jim Rogers popped up a week ago putting a StateSide recession as an absolute certainty within a year's time; (the Baro suggests 'tis already been well underway).

Elsewhere, undergirding the ECB's accommodative ramp-up came a second consecutive monthly drop in factory orders for the EuroZone's largest economy of Germany; (sales for Porsche reached record levels, but with still declining margins, such that weight-shift across the trans-axle may be bringing on a bit of imbalance toward maintaining track adhesion). Quite. Meanwhile in China, 'tis the old "if you can't pay us back, then we've just bought you" as rules purportedly are being drafted toward converting banks' riskier loans into their simply owning a bit of you by claiming an equity position. Xièxiè.

"Thank you" indeed in the sense we can thank Gold for having already reached our 2016 target of 1280; but on the other hand, given there's better than nine months left in the year, one might justifiably query "Ought there thus be more in the balance?" or "Is That All There Is?"--(Miss Peggy Lee, '69).

"So mmb, are you gonna give us a new target still for this year?"

'Tis the thinking, Squire, but not yet. In recent missives we've accounted that much of the criteria for "how we'll know when the bottom is in" are presently met. The one outlier remains that Gold has yet to trade for a full week above 1280, (i.e. atop the 1240-1280 resistance zone). 'Course, then 'twould have to face those horrid Whiny 1290s. The latter notwithstanding, (1240-1280 ideally thus becoming supportive), we'd then have the opportunity to revise our year's target up to Base Camp 1377. (But for the time being as this is off the record just between you and me, don't tell anyone).

One thing to bear in mind is Gold year-to-date having already been up as much 21.4%: in the post-Nixon Gold Standard-nixing "modern era" (with Gold now in its 42nd year as traded in contract form), there've been but nine years wherein Gold has finished higher by better than that 21.4%, the most recent being 2010 (+29.5%). Were price to finish 2016 at Base Camp 1377, 'twould be Gold's fourth best year of the four-decade bunch. (But again, mum's the word, Mum).

For the present, here's that with which we must deal. In the following two-panel chart, on the left with three months-to-date of Gold's daily bars, the now waning 21-day linear regression baby blue dots of trend consistency are suggestive of near-term price downside vulnerability; and on the right, we find Gold essentially centered within its 10-day Market Profile:

As for Gold vis-à-vis its BEGOS valuation, (the regressing of price's changes relative to those of the BEGOS Markets: Bond / Euro / Gold / Oil / S&P 500), you'll recall in the following graphic per its lower left oscillator (price less value) that a month ago Gold had risen extremely well away from its smooth line; 'tis a Gold positive to now see price and the line soon to meet without Gold having gone over the cliff. As for the S&P on the right, there's not a care in the world, (yet...):

We'll wrap it up for this week we these few observances:

■ There are multitudinous ways of measuring what is the "average per capita income" here in the US. Suffice it to say, let's put it either side of $50k. The irony is, (according to New York's Office of the State Comptroller) that the average "Wall Street Bonus", (i.e. beyond that of salary/commission), for 2015 was down nine percent from that in 2014, all but now triple ($142k) the compensation for the average schlub. Bummer.

■ One wonders if this, in turn, shall lead here to that which is already problematic over there in the United Kingdom, its Office for National Statistics reporting via a survey that there's no lightening up on "binge drinking", with some 2.5 million subjects imbibing in better than one week's worth per day. Fretting over Brexit perhaps.

■ We closed out last week's missive pointing to the convenience of having a shower on your airline of choice when transporting your Gold bars, such as to keep them clean and shiny, from point A to point B. Indeed, the loo seems to be the "in place" these days for Gold, the Calgary Herald reporting Perfection Plumbing & Gas as having uncovered a one kilo bar of the yellow metal during a recent lavatory renovation; valued at yesterday's settle, the 35oz. brick is worth some $44,000. "Harold, what are you doing in there?"

■ Finally, with respect to your aforementioned lexicon's new acronym, have you got yer "NIRP" on? Janus' Bill Gross keenly has his wary eye on it all, in quoting him per the WSJ: "...central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity – until it reached a negative interest rate dead end and could drive no more..." Fed Chair Yellen may weigh in on this come her post-FOMC policy statement press conference on Wednesday. Or she may not, for at the end of the day, all is well -- at least over here. Thank you, dear.

Ex-Fed, the new week also brings us 18 data inputs for the Econ Baro: 18 tell-tale items for which the current consensii call for a bit of slippage ... dommage! But 'twould in turn bode well for Gold to maintain its positive image!

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.

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.
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