first majestic silver

Gold Rides Rough As The Fed Talks Tough

Market Analyst & Author
November 1, 2015

One week ago, we pointed to the then pending Federal Open Market Committee policy statement as a "non-event". Essentially 'twas, despite the buzz.

And yet, au contraire, we ought be shaking in our boots now, what? No, not because 'tis Halloween, (which here in San Francisco is essentially a 365-day/year event). Rather, because the Federal Reserve Bank's Fickle Finger of Fate is wagglin' at our face in preparing us for an increase of rate. Come December, they say. Is there no other way?

Notwithstanding the huff-'n-puff, sabre-rattlin' statement by the FOMC this past Wednesday, we rest assured that their rate shan't inflate. Here's why, as we cue Rod Stewart's 1971 tune "Every Picture Tells A Story":

'Tis not rocket science folks: when incoming economic data is improving, the above graphic's blue line goes up ... and vice-versa. And given that the blue line is going down, the stock market loves it -- so much so that not only was the S&P 500's brief 12% correction merely a wee nightmare, but the swift recovery sufficient to put the Index atop our BEGOS Market Standings with 10 months of 2015 now in the books:

'Tis further encouraging for the S&P that earnings no longer matter, (our "live" price/earnings ratio for the Index now into as extreme territory as we've ever seen at 42.1x), for as long as Quantitative Easing remains inevitable, no haven other than stocks is habitable, (at least by conventional wisdom).

Not that we're none the wiser, however there is Gold, which in dropping 2% for the week to settle yesterday (Friday) at 1142 presently is some 55% below our debased currency equivalency level of 2541. Recall from a week ago our noting that Gold could see 1144 by its daily parabolic trend having gone from Long to Short. Nonetheless, the weekly parabolic trend remains comfortably to the Long side, resting well above the ascending blue dots as we see here:

Indeed, the pure technician would opine that 1144 was in the cards regardless of any fundamental catalyst, an example being what was said at the Fed. Still, isn't it odd that if the S&P is seeing QE, so shouldn't Gold, too, be on an upside spree? But there again that doggoned conventional wisdom rules Gold's roost: "Gold can't go up if the stock market, Dollar and interest rates are going up". Wanna bet? (Does anyone remember 2005? S&P +3%, Dollar Index +12%, FedFunds from 2.3% to 4.3%, Gold +19%).

"That'd be a great trivia question, mmb!"

Oh 'tis been hauled out before, Squire, after which one momentarily hears crickets ... and then a change of subject.

Subject however to a year-over-year, (let alone four-year), brow-beating is Gold itself along with its far more volatile equities brethren, to which, (by request from a valued core reader), we've added SIL, an exchange-traded fund of Silver miners. So from October of a year ago, here's our half-dozen, albeit fully-submerged, bunch including the Gold Bug's Index (HUI), Newmont Mining (NEM), Goldcorp (GG) and Royal Gold (RGLD). And again of late, 'tis a rough ride indeed:

To be sure, those Gold equities are not for the faint of heart; but for the fattening of one's asset base, they are a food for a fruitful future, if only they'd get off the schneid so we can say "The future is now!" But as you can see, when they go, they go!

Problematic as well to Gold's not going up most recently have been the baby blue dots that depict 21-day linear regression trend consistency. For just as we've noted earlier that Gold's daily parabolics had turned south prior to the FOMC's augury, so too had our "Baby Blues" for the Precious Metals. Here they are for the past three months in this two-panel graphic with Gold on the left and Silver on the right:

As for the updated 10-day Market Profiles, we see in this next two-panel view that Gold (left) doesn't have that much overhead resistance with which to deal, should price make the rapid run back up to that 1166 resistor, whereas Silver (right) could sooner get stuck in the 15.85-15.90 zone:

Still, as 'twas put forth by Bloomy this past week, "European shares rose with U.S. equity-index futures on speculation that central banks around the world will persist with monetary policies and stimulus designed to boost growth." Further, we saw that the United Kingdom's economy eked out just a meager 0.5% Q3 gain as output for both construction and manufacturing fell, the news agency noting it all to be "a sign that Britain may be falling prey to global headwinds." That already having been an underscored concern across the EuroZone, what goes 'round the globe comes 'round it as well. (See Econ Baro).

And as it all ultimately leads to QE, what now need come 'round with respect to Gold are some buying sprees, for as we turn to our categorized chart of weekly bars since 2011's All-Time High (1923), just to get above purgatory and back into the basement (sous-sol) would be a welcome achievement. At least we've been knocking on the door...

So into November we go, the last three of which have all been net negative for Gold, 2013's being the weakest with a 5% loss. A repeat of that would put Gold sub-1100 at month's end. Let's not go there; rather, a run to the 1200s would instead shed more light upon "how we'll know when the bottom is in".

Speaking of which, we'll know in a week's time if StateSide job creation, per the Bureau of Labor Statistics' rosy methods, has bottomed. Counting jobs is a tricky business. To wit, we leave you with the following accountings of trying to get it all right per various FinMedia sources with respect to Deutsche Bank, (that's the one with the derivative holdings which purportedly exceed Germany's gross domestic product by some 20 times), letting some folks go. This from our "But Who's Counting Dept.":

Bloomy: "Deutsche Bank to Shrink Workforce by About 26,000"
CNBC: "Deutsche Bank to shed 35,000 jobs"
Irish Times: "Deutsche Bank cuts 15,000 jobs"
FinTimes: "Deutsche Bank to cut 9,000 jobs"

I'm glad I don't work there...

In any event, don't be scared off by a tough talkin' Fed; go out and ride with some Gold instead!

Have a safe and happy Halloween!

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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