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Gold Precisely Reaches Base Camp 1377 --- Is That IT for 2016?

Market Analyst & Author
July 10, 2016

In last week's missive, (Gold then at $1,345), we modestly raised our high target for this year to the vaunted level dubbed as "Base Camp 1377". Now with Gold having settled yesterday (Friday) at $1,367, what was Gold's high trade this past week, indeed for the year-to-date, thus far? $1,377. So is that it for 2016? Keep reading.

You know that you have a hot market when your year's target (originally $1,280) was met barely two months into 2016 (on 04 March). Then just one week ago at mid-year, Gold having met a variety of technical criteria -- for months through which ad nausea we dragged you valued readers -- the door finally opened to select $1,377 as the high target for the remainder of the year. Given it took but one week to achieve $1,377, again, you know that you have a hot market.

"So c'mon, mmb, is that it for 2016?"

Keep reading, friend Squire.

As Gold continues to regularly take the back seat to all things markets, save for you ardent precious metals followers out there, nobody knows that Gold is having an historic year, at least up to here. Indeed, were 2016 to have ended this past Thursday (6 July) upon tapping $1,377, 'twould go into the record books as the yellow metal's fourth best annual percentage increase (+29.9%) in the last five calendar decades, (since Nixon's Gold Standard nixing). Casually ask anyone today how much Gold has increased this year, and a) they won't know, and b) they'll look at you aghast when you tell 'em by more than $300/oz. Here's the math: 2016's high of $1,377/oz. less 2015's close of $1,061/oz. = a gain of $316/oz. Who knew? The hot market of which nobody knows. "Their" ignorance is our bliss, and should "they" one day actually buy, our elation.

As for why we give $1,377 its deserved due, we have to go all the way back to that diabolically daunting period in mid-April 2013 when in mere hours Gold careened from the $1,600s to the $1,300s, as if creating a Golden Archipelago down through the South Seas, finally collecting and basing itself in and around the centerpiece price of $1,377. Here's how 'twas explained in the 179th Gold Update entitled "Base Camp: 1377" from 20 April, 2013:

"... as would a hot knife through Golden butter did price literally plummet pell-mell ... But there in the begetting blizzard of accelerative selling did our Gold Troops then suddenly encounter an aged fellow, worn by the generations of time, yet still with a Golden gleam in his eye. The Troops approached him, warily inquiring as to who he was. 'Fear not, loyal troops of Gold', came the reply in a Romanesque accent from centuries past. 'My name is Leonardo Pisano Bigollo. But as we are friends, you can call me ‘Fibonacci’...

... with respect to Gold having finally created a viable support shelf at Base Camp 1377 ... the trading range over which “Fibonacci retracements” are described span between two or more major market turning points ... this requires the subjective “art of the Fib”, (a tactic oft successfully used by many a politician), in order to make the analytical argument. In this case ... measuring from Gold’s high for the year in 2008 ($1,034) to its All-Time High in 2011 ($1,923) and then applying the Golden Ratio retracement factor back down brings us to Base Camp 1377."

So there 'tis. And from the argumentative "Support Becomes Resistance Dept." $1,377 having visibly proven itself as prior support, perhaps 'tis not all that coincidental in now having this past week returned precisely to that point -- but by not one point more -- for the first time since 17 March 2014, one might well query: "Is that it for the 2016?" Let's keep reading.

And with respect to Base Camp 1377, 'tis the tip of the rightmost weekly bar as we see here:

Moreover, were Gold to cool from here and move net lower to settle out 2016, let's say in The Whiny $1,290's, 'twould still be a stellar up year for Gold of +21.5% (at $1,290). To be sure, Gold showed itself as a bit loosey–goosey yesterday around the release of the June payrolls gain (287,000), price nervously nose-diving nearly 30 points from $1,365 to $1,337 in just five minutes, before recovering in full prior to the opening of the StateSide equities markets, (eliciting a sigh of relief from you mining and royalty stocks traders out there).

But what of that gonzo payrolls number, eh? From just a revised 11,000 of net payrolls creation in May to June's 287,000 is a "swing" of +276,000. To put that in context, here are said "swings" month-by-month for the last five years-to-date:

'Course, that rightmost huge "swing" didn't fool the Baro, in a week where reports saw May's factory orders decline for their 14th slip in the past 22 reported months, the trade deficit grow, and with further respect to June's "jobs", the unemployment rate rise and hourly earnings growth slow. Here's the Economic Barometer:

'Course, 'twas also reported that stocks cheered the good payrolls news. Yet are stocks not suppose to decline on "good economic news", (whilst continuing to rise on "no earnings", our live price/earnings ratio of the S&P 500 presently at 41.3x)? But with the Federal Reserve Bank's dogs having been called off for the foreseeable future, stock market life is good. And no rate rise of course also redounds well for both Gold the Bond, the 30-yield for which is as low (2.110%) as far back as our data doth go. You may have read Harvardite Lawrence Summers' piece this past week that "Interest rates are at inconceivable levels, and we must confront what that means." Well, one thing it means --perhaps THE thing it means -- is that the world is so awash in foundationless faux-dough fluff that it ain't worth anything. You want the banks to hold onto your crap? Ya gotta pay 'em to so do. Put another way, holding onto Gold is the right thing to do.

Indeed in getting past the pro-Brexit vote, the following three markets have all been on the rise since mid-chart, as we look at the last 21 days (one month) percentage tracks for Gold, the S&P and the Bond:

In fact, speaking of Brexit, the three modern-day consolidations of what has morphed into the European Union were 1992's Maastricht Treaty, preceded by 1957's Treaty of Rome, prior to which was 1948's Hague Congress. The combining of the United Kingdom's countries occurred from 1532 to 1801, that latter date being 147 years prior to the gathering at The Hague. So historically, the UK has actually made a go of it on its own, dare we note, over prior centuries. Just sayin'...

From centuries to days, as next we've the daily bars for the past three months-to-date, featuring Gold on the left and Silver on the right. The baby blue dots are the day-by-day consistency readings of each market's 21-day linear regression trend. You can see where Sister Silver was the white hot metal on overheat during the prior long weekend Stateside. Note as well the strong intra-session recoveries yesterday (rightmost bar for both markets) post-payrolls data:

Moving on to their 10-day Market Profiles, the staggered support prices are evident for both Gold (left) and Silver (right). That said, again bear in mind Gold's nearly 30-point plunge yesterday in a fleeting five minutes. And should prices pull back through here, we'd like to see $1,322 hold for Gold, and $19.30 stay solid for Silver:

So in summary, is Base Camp 1377 as high as Gold gets this year? 'Tis clearly a "visible" trading price as we saw above in recounting our encounter with Friend Fibonacci, and further, 'tis essentially a historic percentage run we've already had, in just half the year. To be sure, Markets don't move in a straight line, and yet as measured by our Gold Scoreboard at the outset, price remains only about half what it ought be, so there's better than 1,000 upside points legitimately available just on that scale alone. So what would be just another 100 or so more for the balance of this year, eh? Then there's global terror to consider, which horrifically seems a daily event: on the heels of Turkey just over a week ago, since our prior missive we've suffered mass human tragedies in Bangladesh, Iran, Saudi Arabia, and here at home. As one "analyst" quipped this past week, (paraphrased), "In two years time we'll look back on these incidents and they'll appear small." That's big ... too big. Protect of both health and wealth is critical.

But before we raise our upside Gold target for this year beyond Base Camp 1377, let's first see if we can sustain a full week above it. If so, we'd set our sights on the $1,430s, not just because as noted a week ago that "commodity experts" in converting their Rupees to Dollars are targeting that area by year's end, but also because 'tis the August 2013 high area to up which Gold later reached following that April 2013 Golden Archipelago fallout.

In the interim, the new week brings us data on inflation, retail sales, manufacturing measures and the Fed's Tan Tome (on Wednesday, 13 July). So hang in there, and hang onto your Gold, regardless of which way it goes!

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 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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