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Gold Showing Signs of Stirring

Market Analyst & Author
June 21, 2015

Gold is beginning to stir after seemingly sleeping through so many weeks of otherwise financial gyration amongst the markets that comprise BEGOS (Bond / Euro / Gold / Oil / S&P 500). The world's wary wonderment of "What's Next?" is increasing across the spectrum from Federal Reserve Bank policy to currency instability given what honestly appears as the inevitable fallout from the EuroZone of Greece, the latter's woes of defaulting debt, bank runs and civil strife remaining at the top of the FinMedia stack.

One might, of course, say that relatively small Greece shan't materially upset the olive cart; indeed in peeking back five years ago to The Gold Update of 08 May 2010, we plucked the following:

"Geographically, Greece is about the size of Alabama and has about double its population, (11m vs. 5m). Here’s a quick economic comparison:

Nominal Gross Domestic Product: $331bn, or some $29,400 per capita

Gross State Product: $170bn, or again some $29,400 per capita

Query: Given the magnitude of stock market panic over something the size of Alabama, what’s gonna happen when they figure out that a state such as, oh say, California is in infinitely worse shape?"

Fast-forwarding to today, the point is: the ripple effect of a Greece going to ground is sufficiently unknown. At the time the foregoing was penned, we'd also noted that "The ensuing sovereign debt contagion across the Mediterranean Euro Lands is of justifiable concern", and lest we've all too-short memories, the so-called "PIIGS" have never really left the pen. But 'tis easy to be forgetful when many-a-stock market is making a record high, in turn having kept Gold in the sty. Yet as the yellow metal begins to stir, we're alert to the masses' state of complacency morphing into one of complaint sooner rather than later upon their valued paper assets turning south.

Indeed, Hellas' again making history (as has been its wont these many millennia) is to some degree obfuscating other events worthy of note. So on the off chance you've missed them, here are a couple of examples: 1) China's Shanghai and Shenzhen stock markets -- after having just achieved all-time highs nary a week earlier -- now have netted weekly losses exceeding -12%; (that would never happen StateSide, right?); and 2) China Aircraft Leasing's CEO "Mike" Poon Ho Man resigned out-of-the-blue Wednesday -- whilst on holiday no less -- and hasn't been heard from since. Of course there's so much more here, there and everywhere. Yesterday (Friday) in writing to a dear news anchor friend in France, I noted "Le monde va dingue" (The world is going crazy). Thank goodness for Gold, and moreover, for its now showing signs of stirring. 'Tis long overdue; let's review:

Last week's missive pointed to the disproportionate compressing of Gold's "expected daily trading range" (EDTR) whilst those of the Bond and EuroCurrencies were essentially running amok. But now we've the early evidence of Gold's stirring, as three of this past week's five trading days traced ranges exceeding the EDTR. In turn, this has caused the track of Gold's EDTR to turn upward as depicted in the following chart of this measure from one year ago-to-date. Note how the EDTR picked up the pace per the arrows of the prior two bottoming instances, and thus the new rightmost arrow foresees range to again increase. As we've emphasized in the past, this is not a chart of market direction; rather 'tis a measure of anticipated daily price travel:

And traveling upward was Gold's direction for the past week, as we turn to the weekly bars, in escaping what was becoming a close call with the rising blue dots that define the parabolic Long trend. For the 24 trading weeks year-to-date, this past one was Gold's fifth best gain on both a points and a percentage basis:

Now: having shown that Gold is stirring, this next chart we find fascinating. Yes, 'tis a fairly regular staple of The Gold Update, the yellow metal's month-over-month daily percentage track compared with that of the S&P. But this is somewhat of a surprising view, non? Gold and the S&P are once again engaged in a pas de deux, romantically stepping together in their ballet across the chart, versus their oft assumed moving in opposing directions. The fascinating bit is this: in peeking into our database, the last time GOld and the S&P were in this consistent a mathematical degree of positive correlation, (which for you WestPalmBeachers down there means these two markets directionally moving together, be they rising or falling), was back on 19 December when Gold settled at 1194.5, (just 5.8 points below the present 1199.8 level). 21 trading days later on 22 January of this year, Gold settled at 1302.1 -- just in case you're scoring at home and becoming excitedly anticipative of an encore performance (!):

Ah yes, the Golden Pot is being stirred, the above arithmetic convention of correlation indicative of further upside direction for Gold, should such like conditions induce a repeat of the December-to-January run. And thankfully the "Baby Blues"-- which a week ago were pointing lower still -- instead righted themselves for both Gold and Silver. As we see here in the following two-panel graphic of daily bars over the last three months for both Precious Metals, the blue dots indicative of 21-day linear regression trend consistency are now rising; we caution that the trends themselves remain classified as "negative" until above the 0% axis the Baby Blues actually print, which for Gold on the left appears imminent, whilst for Silver on the right looks not as imminent. Indeed, the white metal's performance is being retarded by Copper, the red metal having now lost ground in six of the past seven weeks, (too ugly a track to display here and wreck our more ebullient mood):

"Odd that copper is doing so poorly seeing that the economy rising, huh mmb?"

"Rising" is a relative term there Squire. Be thee not duped. As we'd recently cited, Copper is "no longer considered" a leading economic indicator, to which we query "Oh really?" As we turn to the Economic Barometer, which as you infer has duly been moving up since 18 May, (whilst Copper throughout has been going the other way), we sense there's more to this Greek play, (i.e. the resumption of downside sway)...

... which given Gold's renewed stirring ought prepare it to make some upside hay. Bear in mind the potential currency upheaval from a so-called "Grexit", Germany's investor confidence having now fallen for three consecutive months, the Bank of Japan's affirming their $650 billion annual stimulus scheme, the noted Chinese stock exchanges' unravelings, and from the "'Tis Not Just Us Dept.", we read a piece this past week by a money manager who -- whilst expectant of a Fed interest rate hike -- wouldn't be surprised if The Bank instead reverted to another round of Quantitative Easing. Moreover, not to be left out of the cautionary fray, the Schweizerische Nationalbank is maintaining both negative interest and depository rates towards discouraging the Swiss Franc popularity which stifles the neutral nation's economy. All of this amounts to a pile of Gold positives.

Let us thus below proceed to the Market Profiles. And for Gold (left) we see the new near-term resistor there at 1202, with trading supporters at both 1187 and 1180; whereas for more suffering Sister Silver (right), 15.95 is the last supportive band for her near-term stand:

Obviously the Big Topic through this weekend and on into the ensuing week is the furtherance of talks and emergency measures to save, (or not so do), Greece. But mind our Econ Baro as well, notably with Personal Income and Spending data due on Thursday. Again, with so much going on out there, indeed as the Northern Hemisphere spins on Sunday through its Summer Solstice, 'tis no wonder that Gold is showing signs of stirring!


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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