first majestic silver

Gold Rolled With The Rest Of The Fold

Market Analyst & Author
November 8, 2015

'Twas what that we wrote one week ago? Quote: "[Gold's] weekly parabolic trend remains comfortably to the Long side, resting well above the ascending blue dots as we see here." Now one week later, might we defer to the great Inspecteur Clouseau? Quote: "Not any mourrrrre....." Said parabolic trend just flipped to Short as we start with Gold's weekly bars, the rightmost having painfully plunged:

And yet, you guessed correctly: 'twas our "Misery Loves Company Dept." which came up with the title for this week's missive. Notwithstanding the exception of the stock market, the balance of our BEGOS Markets all are in 21-day linear regression downtrends. 'Tis therefore apropos that we update the following graphic, which back in the 17 October Gold Update showed all eight components as being in uptrends. But now, the "Sole Survivor"--(Asia, 1982) is the S&P 500, below in the lower rightmost panel labeled "SPOO", which has the only ascending diagonal trendline of the bunch over these last 21 trading days. Again as this graphic is purposely reduced for reasons of size, our focus here, rather than on the prices, is on the diagonal trendlines and those "Baby Blues", the dots which depict each trendline's consistency (down!, ex-S&P):

"That sure looks like deflative economic implosion to me, mmb..."

Squire, your rare multisyllabic employment of the vernacular seems spot on in this case. But specific to the S&P, 'tis perverse enough that it has fully recaptured essentially all that it gave back during August and September, especially when considering that Q3 earnings improvement for the Index as a unit has been virtually vapid, our "live" price/earnings ratio now reading at a staggeringly high 45.6x. Further, for the S&P to be rallying right alongside the Daring Doggie Dollar makes said perversity appear as having morphed from amoral to immoral. And yet, this is what we get with a flight of foreign capital into StateSide assets as global growth slows, save "purportedly" for that of the USA and its "promise" for attractively higher interest rates. And why not, eh? With unemployment back down to the magic 5.0% level for the first time since April 2008, (ignoring what then next happened), we're finally "fully-employed". Here's the Economic Barometer:

Still, after yesterday's (Friday's) report of +271,000 payrolls having been created in October, not even the S&P could ward off FedFear, the interest-attractive Dollar soaring such as to plunge all eight of our BEGOS Markets into red for the session. And from the standpoint of "credibility", members of The Federal Reserve Bank's Open Market Committee certainly must be all smiles at the moment. I'd say at the very least they owe their mates over at the Bureau of Labor Statistics dinner at The Capital Grille, indeed an opportunity to entice them to perhaps stir up +300,000 payrolls for November and thus seal the deal toward nicking up the cost of FedFunds come 16 December.

As for Gold, dust ourselves off we must, for nary ought we be nonplussed. Obviously Gold today at 1089 is just 43% of our 2560 "scoreboard" valuation level, (StateSide currency debasement, even as adjusted for Gold's own supply increase). But nearer-term, Gold has certainly fallen off the radar screen when compared against the S&P. Here are their percentage tracks for the past 21 trading days (one month):

However, there's more to this comparative story as we next turn to Gold and the S&P vis-à-vis their respective BEGOS valuations, (smoothed calculations of where price "ought be" given how a specific market is changing relative to the overall BEGOS bunch). The following two-panel graphic depicts the daily closes of the past three months for Gold on the left and the S&P on the right along with their smooth, pearly valuation lines. You veteran readers know the drill here, the key to both panels being the oscillators (price less valuation) at the graphic's foot. Note that both oscillators are at extremes, suggesting that Gold is presently better than 50 points "too low" and the S&P over 100 points "too high":

Rather treacherous stuff, what? A ghastly gutted Gold and a horribly high S&P. Here's a point to consider for both markets:

Gold: as we've on occasion inferred, de rigueur these past four years is, on balance, to consider all Gold-positive tidings to already be priced-in, but never those that are Gold-negative, (i.e. Gold gets repetitively sold on news that's old).

S&P: Mike O’Rourke (JonesTrading) put it perfectly this past week in saying that "Those who are chasing Goldilocks on declining earnings, decelerating economic data and high valuations in the seventh year of zero interest rate policy are exposing themselves to extreme levels of risk", (i.e. nuff said).

Nevertheless, our criteria as to "how we'll know when the bottom is in" for Gold has now taken a step backward as we saw at the top of this piece with the weekly parabolic trend having flipped from Long to Short. Neither are any of the other "requisite" criteria as yet in place, those being price closing above the 300-day moving average, having that average itself turn upward, and seeing Gold trade for at least a full week above the 1240-1280 resistance zone. Thus, here are Gold's daily closes since that of its highest ever (1900 on 22 August 2011) along with the present state of those criteria. The graphic brings to mind that current TV spot for tyres: "[Customer] Looks like we'll be here awhile... [Technician] First time on a treadmill?... [Customer] What are you sayin'?..."

This week's final visual is that of the marked changes in the 10-day Market Profiles for both Gold (left) and Silver (right). From having been supported to now being thwarted: such painful profiles they are! Poor ole Sister Silver in her industrial metal jacket has queued up with Cousin Copper at the bottom of the stack as if incestuously parked together outside some seedy motel. But with just the barest glimmer for Gold, we've a nugget: look at the volume of trading having taken place just yesterday, (the coloured swath being that day's range within the overall 10-day picture), at the lowly 1087 area, a sign of buyers' willingness to get on board there:

Indeed Gold got rolled with the rest of the fold. Lots of extremes out there, Ladies and Gentlemen. The complacent "sigh of relief" in having made it through October without the stock market re-crashing may well turn to hopes dashing. Fed Chair Yellen told us this past week that the economy is "performing well". So not sayeth the Econ Baro. Nor hardly that of the globe at large. This week we saw the European Commission reduce its inflation and growth prospects for 2016; we had a "surprise" drop in Germany's industrial orders; Toyota lowered its yearly forecast for sales; and for you Baltic Dry Index enthusiasts out there, the mighty Danish conglomerate Møller-Mærsk came in with a 48% plunge in Q3 net profit. Ouch!

At least Bloomy tried to keep it all cheery by exclaiming in their wee hours' radio broadcast that "China's stocks have entered a bull market, that's right, a bull market!" Good grief. They'd already run a piece earlier in the week entitled "Five Things Everyone Will Be Talking About Today", upon which I queried a few folks, none of whom could name one of the "Things". Sloppy journalism at best.

Finally and strictly with respect to the yellow metal, remember the goofy 1965 oldies tune by The Rainy Daze entitled"That Acapulco Gold" We recalled it this past week upon the Mexican Supreme Court's favourable ruling for the recreational use of Mary Jane, noted Justice Arturo Zaldivar stating thereto that 'tis "...within the autonomy of the individual, protected by their freedom to develop themselves..." Really? Holy Maui Wowie. The moral is: don't smoke yer Gold, folks; rather, stack it for a rainy day ... 'tis coming!

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.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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