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Gold Firms Following Fed Theatrics

Market Analyst & Author
September 25, 2016

No doubt you Shakespeareans out there recall from "Hamlet" the Danish prince's sycophantic buddies, (turned spies for cunning Uncle King Claudius), Rosencrantz and Guildenstern. 'Course, as the tragic tale unfolds, the immortal Bard deftly writes the pair out of the script, courtesy of Hamlet himself finding and rewriting his would-be executioner's instructions. All that fictitiously went down 'round 1600.

Now let's fast forward four centuries past to today's Federal Open Market Committee, wherein we find Rosengren, George and Mester. Might their minority votes in failing to raise the Funds Rate this past Wednesday nonetheless be an expression of dissent against Princess Yellen, perhaps toward currying favour with a would-be King Trump? Ah, how the tragic tale of the Federal Reserve Bank doth unfold! Such classic theatre 'tis.

Less of a classic approach, but certainly more in tune with that of modern-day society, came the following assessment. Long-time readers of The Gold Update know that our microphones are just about everywhere, indeed picking up this bit from Wednesday's post-Policy Statement press conference by the Fed Chair herself: "Economic growth, which was subdued during the first half of the year, appears to have picked up. Household spending continues to be the key source of that growth. The spending has been supported by solid increases in household income as well as by relatively high levels of consumer sentiment and wealth", in response to which came this from maverick FinRadio host Phil Grande: "[laughing], I tell you, this woman is more crooked than a corkscrew. You can't believe a thing that she says, not a thing!" Such "in your face" theatre 'tis.

Regardless across the spectrum of opinion, ours analytically regards the track of the Economic Barometer (blue line) in recent months as corkscrewing along with a downside bias, per this view from one year-ago-to-date along with the bubblin' S&P 500 (red line):

'Course the best bit of all from the standpoint of Gold is not so much that price firmed, post-Fed theatrics, because of the targeted Funds Rate staying put in the 0.25%-0.50% range, but rather that price firmed in spite of the dissenting Rosengren, George and Mester. You see, (and we'll review this just prior to the StateSide presidential election of 08 November), should Mrs. Clinton/surrogate emerge victorious, 'twill be printing-heaven pro-Gold, period. Should it be Mr. Trump instead, oh woe will be the Fed in terms of its governance then ahead ... and uncertainty surrounding the world's most scrutinized central bank ought well be pro-Gold.

Indeed, in next turning to the yellow metal's weekly bars from a year ago-to-date, we find the ascending blue dots denoting the ongoing parabolic Long trend as now 15 weeks in duration, with 1299 as the hurdle level above which to stay for the ensuing week. Moreover, in the wake of last week's missive "Gold's Mild Slide Toward The Next Up Glide", we've confirmed two positive MACD ("moving average convergence divergence") technical signals for Gold. The first (12-hour MACD) came on Wednesday post-Fed at 12:00 PT, giving us a Market Rhythm Target of 1364; the second (daily MACD) came at the close yesterday (Friday), giving us a Market Rhythm Target of 22 points higher (likely also in the 1360s) above the opening print when trading resumes tomorrow (Sunday at 15:00 PT). Given that Gold's "expected weekly trading range" is presently 37 points, and price having settled yesterday at 1341, the 1360s are within range for the new week should the trading bias be to the upside. 'Course, the real theatrics for Gold shall hit the stage upon regaining the Base Camp Camp 1377 level, (our "revised" high for this year following price having cleared 1280 for better than a week back in early July), and thus far the precise high year-to-date:

As for clearing a "landmark level", Gold's 300-day moving average now sits above 1200 (at 1202) for the first time since this date a year ago. Gone are the days of the 1000s and 1100s? We ought so think, especially given our current Gold Scoreboard valuation -- based upon Dollar debasement alone -- of 2644! (And then, as we're wont to say, "there's the overshoot"). Here are Gold's last five years:

As for the full compliment of the BEGOS Markets (Bond, Euro/Swiss, Gold/Silver/Copper, Oil, S&P), when we last presented their 21-day linear regression trends, all eight were running negative. Now per the following graphic, five are pointing positive, namely those diagonal lines for the metals' triumvirate and the two EuroCurrencies. The baby blue dots are indicative of each trend's consistency, those for Gold (upper right panel) having just crossed to the positive side of their 0% axis. And as go the "Baby Blues"... well, see for yourself. For as goes the iconic blues piece from back in '69 by John Mayall, we've got "Room To Move"higher. Here are the respective markets' last 21 trading days (one month):

Next, let's zoom in on the precious metals' 10-day Market Profiles. And as we below see on the left for Gold, and on the right for Silver, both markets have overcome lower price resistors, in turn morphing them into price supporters as labeled:

Toward several closing notes, have you noticed this month, with but a week to run, has hardly been one to remember, but rather a September without the expected fervour. Using our EDTRs ("expected daily trading ranges") from the website, one shall find Sister Silver to be a bit more peppy than she was one year ago, and Gold about the same as 'twas. But in looking at currency and stock in a month that oft breeds trading torture, there's not a lot goin' on out there. To wit, the following panel shows us the EDTRs day-by-day from a year ago-to-date for the Euro (left) and the S&P (right):

As above shown, a year ago at this time, the Euro's range was expected at almost 1.2¢ per day; now 'tis at 0.7¢ whilst for the S&P futures, a year back the EDTR was 36 points per day, but is now down to 23. Fed theatrics? Election dramas? Banking bobbles? Planetary wobbles? A world on hold ahead of everything, so 'twould seem. Here are some bits of the everything:

■ We learned yesterday, not surprisingly, that the economy of the EuroZone is losing what momentum it ostensibly may have had, the region's Purchasing Manager's Index dropping to a level (52.6) not recorded since January a year ago. What was surprising is that France's contribution to the PMI kept it from being worse still. Bravo mes amis! But can they right Germany? Up with the yo-yo, down with the yo-yo.

■ On the heels of Goldman Sachs just a week ago shifting its equities exposure emphasis, notably for the S&P 500, to "underweight" whilst recommending that portfolios hold cash, the venerable investment bank nonetheless just did their periodic trotting out of long-time partner Abby Joseph Cohen to put forth that there is no bubble in the stock market. What?

■ Meanwhile, over at competing investment bank JPMorgan Chase and their case, U.S. District Judge Alison Nathan has ruled favourably toward JPM that "bitcoin" qualifies as money. Whilst that's bad news for the bad-guy hackers, we might construe it, if given precedence, to be great news for Gold: more worthless foundational fluff, digital-style!

■ The "I'm Just a Tradin' Fool Dept." picked up on the FinTimes piece this past week about the Cambridge University study which determined that the way to a trader's profitability is through his gut, even to the point of outperforming those elusive algorithmic bots against which we regularly battle. Whilst "gut" may be good, we've at times suffered the peril of the "pre-conceived notion" such as to be more trusting that "the trend is your friend", which is the underlying foundation for the data displayed on the website's "Market Rhythms" page.

■ Or, unlucky at trading, have you put on your central banker's hat to have a go at the new on-line game "Chair the Fed"? Quarter-by-quarter, you adjust, or otherwise, to compensate against the flow of incoming economic headlines, all toward gaining re-appointment to continue your academia vs. reality. Given this game was developed by its devotees right here at our own Federal Reserve Bank of San Francisco, I'm personally distancing myself from any headline subject matter therein provided.

■ The Bank of Japan, rather than futz about over negative near-term rates, has shifted focus to try and bring the longer end of its yield curve (i.e. out to 10 years) at least back up to 0%. One wonders if that would be an "all-in" zero percent return such as to cover the transaction cost of your purchasing a 10-year issuance. Just a thought toward making the BOJ look good.

■ And finally, speaking of Asia, the Bank for International Settlements has calculated China’s so-called "credit gap" (the difference between corporate debt and that of households) as now triple the typical danger level. Further, recall what happens in a week's time? The Yuan as a world reserve currency will be given fifth standing in the BIS' "special drawing rights" basket at 11%, behind the Dollar, Euro, Pound and Yen. Therefore: Don't forget China ... And hang onto your 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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