first majestic silver

Gold Jigged, Silver Rigged…But Stocks Pigged

Market Analyst & Author
December 11, 2016

Again, we hark back to the great Welsh football commentator Toby Charles, who in describing match-turning chaos and then running out of superlatives, would exclaim: "Ohhh, 'tis all happening there!"

To wit:

■ This past week, Gold was jigged this way and that, in a desperate dance to hold the 1170s, its failing to so do threatening a drive by price back down through last February's robust gains, which would all but snuff out the yellow metal's most promising year in its last six;

■ Allegedly no less than four more banks, (in the muddy footsteps of Deutsche Bank), are now facing accusations of having rigged the Silver trade this way and that, the purported bandits being HSBC, Barclays, UBS, and Nova Scotia. Plaintiffs are white hot over the apparent manipulation of the white metal ... and messin' with Sister Silver is a really bad idea;

■ And given both the Federal Reserve Bank's imminent renewal of rate rises and the economic expectations over the President-Elect's policies further pumping "dollar strength", the world has pigged itself silly out on US equities this way and that, so much so that the S&P 500 is unconscionably technically overbought and fundamentally overvalued.

'Tis all happening there indeed!

Let us briefly start with stocks, for if you follow Gold, you almost certainly keep a look-see on the S&P. Here's what we mean by its being technically overbought. The following graphic depicts the S&P ("SPOO") from a year ago-to-date vis-à-vis its smooth, pearly valuation line, (an ever-refining measure which suggests where the S&P "ought be" based on its movements relative to those of the other components that make up BEGOS: Bond / Euro / Gold / Oil / S&P). The oscillator at the foot of the graphic is price less valuation: and presently at +143 points "high", 'tis the second loftiest deviation millennium-to-date; the only other occurrence came in late November 2014, from which the S&P then plunked down 100 points over the ensuing three weeks.

And here's what we mean by the S&P's being fundamentally overvalued (regular readers know where this is going): our honestly-calculated "live" price/earnings ratio of the S&P is presently 33.9x. And as interest rates rise without earnings highs, cue (in Nat King Cole fashion): "Unsustainable..."

Query: is the rise in the Economic Barometer also unsustainable? 'Tis certainly of sufficient steepness to spur the Fed into its rate rise this Wednesday (14 December). And combing back through the Econ Baro's 18-year history, it has recorded upside spurts similar to that which we below see. Just remember: when the Fed raised its Funds rate almost one year ago-to-date, such expectation had already been "priced-in", and yet both the Baro and S&P fell straightaway as shown. Now a year hence, we expect the same Fed catalyst shall again curtail the madness:

"Madness, mmb?"

Certainly so, Squire: a stock index trading at double its earnings support, whilst Gold trades at half its dollar-debasement valuation? Madness indeed, but it maniacally just keeps going. Here are the percentage tracks of Gold vs. the S&P over the past 21 days. And therein note: as "overbought" as we see the S&P (+4% from a month ago), ought we not label Gold as being "doubly oversold" across the same stretch (-9%)?

More madness is made manifest by this morose dose of Gold's weekly bars. Having been up as much as 317 points (+30%) year-to-date, price is now up but 101 points (+10%). The declining red dots of the parabolic Short trend are only down to the 1300 level, whilst Gold itself per yesterday's (Friday's) settle at 1161 is a full 100 points south of the center of the purple-bounded 1240-1280 resistance zone. For the savvy, nimble investor, the good news is that Gold has sufficiently melted down as to have morphed into "blood in the streets", albeit for he who bought this year's high at Base Camp 1377, 'tis not easy feeling queasy:

To be sure, for those who've been accumulators of Gold from the year's higher levels, (especially sans stops nor hedges), surely they must feel under a sickly spell cast by the Shorts. And with price now better than 60 points below Gold's 300-day moving average (1226), one may well quip from back in 1606: "Double, double toil and trouble; Fire burn, and cauldron bubble..."

In fact, the real gut-wrencher of the past week is below depicted in this two-panel view of Gold's daily bars on the left for the last three months-to-date and the 10-day Market Profile on the right. Look at the "Baby Blues": their having been curling up in recent sessions was signaling that the 21-day linear regression downtrend was finally losing its consistency; but then came Friday's down dot: Ouch! Which in turn is why we see price essentially buried at the bottom of the Profile:

Fortunately, Gold's cloud is exhibiting a Silver lining. In her two-panel display, Sister Silver is putting forth a far stronger foot than is Gold, the "Baby Blues" here rising at an accelerating pace and price positioned in the center of her Profile. Her wardrobe's including an industrial metal jacket has served her well of late alongside Cousin Copper, whilst Gold has fumbled about in its best impression of the absolutely pathetic New York Jets. And should those aforementioned supposed Silver Riggers know they were in the wrong (a picture being a 1,000 words), surely they must be cowering in some cold, dark corner:

So StateSide, as practically overnight everything has become "great" (given the booming Econ Baro and soaring S&P), elsewhere everything continues to sag (given the European Central Bank's further prolonging of stimulus, Italy's political fallout and expected bank bail-ins, and Japan's slowing quarterly growth). And stuck in the balance of this Return to Imbalance we find Gold. 'Course, imbalance invariably leads to arbitrage, arbitrage necessitates some form of margin for liquidity should it all go wrong, and upon it so doing, doth spin the currency tumblers to make up the difference. 'Tis the quintessential Gold Positive ... but as for making up ground, price has an ever-so-long row to hoe, now beaten well down from the year's high at mid-stack:

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2665
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
Year-to-Date High: also 1377 (06 July)
The Weekly Parabolic Price to flip Long: 1300
Neverland: The Whiny 1290s
Resistance Zone: up to 1280 (from 1240)
The 300-Day Moving Average: 1226 and rising
10-Session “volume-weighted” average price magnet: 1177
Trading Resistance: 1170 / 1174 / 1191
Gold Currently: 1161, (expected daily trading range ["EDTR"]: 18 points)
Trading Support: (none)
10-Session directional range: down to 1158 (from 1200) = -42 points or -4%
Year-to-Date Low: 1061 (04 January)

In the new week, 19 metrics hit the Econ Baro, in the midst of it all the Fed raising their Funds target rate zone from 0.25%-0.50% to 0.50%-0.75% come Wednesday at 11:00 Pacific Time. But shall it also be time to buy Gold? The late great Richard Russell oft put forth that there is never a bad time to buy Gold. I think we'll all agree with that upon price reaching 2000 ... and beyond!

"Uh, mmb, it's only at 1161 and going the wrong way..."

But neither, Squire, has this gone away, for nothing has actually yet changed, at the end of the day...

Be it jigged, rigged or pigged, 'twill really all be happening there!

Gold-positive indeed.

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.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.
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