first majestic silver

Gold On A Leash Through These Dog Days

Market Analyst & Author
August 21, 2016

Has anyone noticed that Gold through these "Dog Days of August" has been on a fairly tight leash, almost as if reined in by the S&P500…such that both markets from one month ago-to-date have netted at best a mild 1% increase (the S&P's lacking earnings otherwise)?

We know these are the so-called "Dog Days" when, given the significant and far too oft horrific events which have befallen the globe this past year, the lead stateside story of late has something to do with swimmers' mis-escapades at the summer games down Rio way. Not unusually, the August air has become ripe with complacency, Gold and the S&P Index traipsing along together as if hand-in-hand on the summer's final happy walk along the creek and up to the waterfall before 'tis back to reality, the city and the school bus. Here are the two markets' percentage tracks over the last 21 trading days (one month), for which Gold is +1.0% and the S&P +0.7%:

To be sure, our "expect daily trading ranges" (EDTRs) have been narrowing near nothing as we next see for both Gold and the S&P from one year ago-to-date; again these are not price tracks, rather our expectations of prices' day-to-day differences between their highs and lows. A little summertime "how low can you limbo" goin' on out there, after the stormier, yet Gold-positive turbulence we endured across these markets back from mid-June into early July:

'Course, as goes the classic Neil Young piece from '77 "You are like a hurricane, there's calm in your eye...". And you know how Septembers tend to go: "Hey Egbert? I just saw Mabel the cat fly past the window..." In fact, three of the past five Septembers have been net down for the S&P, as have four of them been for Gold. Still, we've a week and a half to mull over what may befall or befriend Gold next month: with price presently +26.9% year-to-date at 1346, (and having been up as much as 29.9% upon reaching our targeted year-to-date high at Base Camp 1377 on 06 July), 'tis fair to say the year's trend is up, what? Moreover, during the 10-year run from 2001-2010, Gold suffered but one net negative September, (a 4.6% loss in 2006). We look forward to further assessing the Then.

As for the Now, here we've Gold's weekly bars, their having run out of puff through these Dog Days, with this third consecutive week having closed near its low, (which for you technician types out there is "three hammers-in-a-row"). 'Tis also the third straight week wherein the net change has been less than one percent. Yes, the sleeping dog may now lie low, but in a month's time be back on the go; 'tis the direction we wish to know, the trend being that Gold ought grow:

"But, mmb, the economy's not lying low: the July LEI was +0.4%, which you said it wouldn't be, huh?"

Well, Squire, you've called me out on that one. Indeed in last week's missive we stated that the Conference Board's July reading of their Leading Indicators, (oft called the "LEI" for "leading economic indicators"), wouldn't grow by the +0.4% consensus expectation. But it did. Yet if we go "inside the numbers" via the Economic Barometer, metrics related to July as below shown make up the purple portion of the Econ Baro's line. With due respect to the Conference Board, does that purple bit look like +0.4% growth to you?

Ought we thus be concerned, (duh?) Take that "+0.4% growth", plus the stock market making a marginal new high as most days go by, and the motto of the Alfred E. Neuman Institute for Common Knowledge stands firm: "What, me worry?" Brings to mind this graphic with which you veteran Gold Update readers are familiar:

Still, according to Reuters, "US inflation tame despite economy gaining momentum." It is? Rather, we ask: is the first economic domino in the course of being tipped? A CNN piece this past week alerted us that "Global Central Banks [are] Dumping American Debt At A Record Pace" That's cute. 'Course, taking the other side of the trade is "private demand" in the chase to grab some "safe" yield whilst 'tis still positive (barely): the 10-year U.S. Treasury Note as of yesterday's (Friday's) settle is yielding 1.578%. Want more? They're those equity funds for emerging markets which reportedly just hit a 58-week high. Nuthin' like "safety in numbers", eh? Sheesh.

Irrespective of whether the first domino to fall is Debt, or Deutsche Bank, or the Dollar -- the latter having lost ground in seven of the last 10 trading days due to a "faltering economy" (thank you Bloomy) -- there then would fall the second domino. Might it be higher unemployment? We read that Cisco Systems is to let go some 14,000 folks. Or earnings becoming weaker still? Amidst all the apparently robust housing news we find that home improvement and appliance supplier Lowe's is cutting its profit outlook; indeed with Q2 Earnings Season now concluded, for the 2,500+ companies collected, only 55% improved over 2015's Q2, (our "live" reading of the S&P's price/earnings ratio still at a staggeringly high 38.0x). What about our foreign friends? Stocks across the pond, as measured by the STOXX 600, just put in their worst week in two months, rents in London are actually falling, some UK savers' rates are being halved (thank you Santander and Brexit banking instability), whilst further 'round the world, Japan's Q2 gross domestic product disappointingly stalled, (poor ole able Abe).

All that said, thank goodness there's Gold! Where would we end up without it? The problem is, of course, most folks are without it! As for "Where is it?", we next turn to the following two-panel display of Gold's daily bars for the past three months on the left, and the 10-day Market Profile on the right. The baby blue dots, (our day-by-day measure of 21-day linear regression trend consistency), are making a somewhat daunting dip rather than returning back up above their +80% level; again, having now had three weeks in-a-row (per the above weekly bars) of Gold giving up its intra-week gains lends to a negative technical bent, at least near-term. And in the profile, you can see the overhead trading resistors depicted at 1348, 1352 and 1358:

The panels are similar for Sister Silver, her "Baby Blues" (left) having just abruptly blown below their 0% neutral level, whilst in her profile (right) the 19.75 level appears as stark overhead resistance:

So although Gold going forward is nothing but fundamentally fantastic, the near-term -- strictly technical read -- is mildly bearish. The same can be said for Silver, albeit as you know, she has a hankerin' of getting torn down away from Gold should Cousin Copper struggle in his industrial metal fettle.

Now let's wrap this week's missive with a bit of Golden Glitter. Apropos of having opened this piece with mention of Rio's Olympic Games, we spent this past mid-week up in Olympic Valley, site of Squaw Valley's 1960 Winter Olympics. And obviously in traveling from here (San Francisco) to there, we traversed California's Gold Country, wherein we were most highly privileged to have been afforded a private tour of a high security Gold stash deep in the foothills of the Sierra Nevada mountains. Securitized by floor-weighting sensors, invisible beams, atomic air particle measurements, all surrounded by guards and four-legged critters with whom you'd rather not have to face as foe, your accidentally breaking wind at either end in this place will set off alarms aplenty, even in the Governor's bedroom many miles westward down in the valley. Yet by their risking it all to give us a peek as a professional perk, we were actually allowed to take the following photograph, (even upon our first warning them that thousands of readers would see it). Behold Real Gold: some 200 troy ounces within a frame not even one meter square. And when you do the math, don't forget to add in almost two centuries of collectible value as well:

Fairly inspirational stuff, that! So if you're one of the 99% without it, then get with it! Unleash yourself and go buy some 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.

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.
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