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Gold Survives GDP Pop…FBI Then Adds A Prop

Market Analyst & Author
October 30, 2016

Once again reality trumps Hollywood: you cannot script this stuff ... well almost not: "Welcome to real life..." --(Spaceballs, MGM, '87)

Ah, but first: with just Halloween left in October's trading balance, let's call it a month and bring up the BEGOS Market Standings through these 10 months of 2016, (save for Monday, which may be an abbreviated one as folks rush out early from their travails to prepare the little ones for trick-or-treat). And for just the second time year-to-date, neither Gold nor Silver are at the top of the table, for given the early October selloff in the precious metals, plus Oil's being fairly firm throughout, 'tis so-called "Black Oil" leading the pack as was the case at the end of May:

That's how they now stand; but if something tells you the above table may look a bit different in a month's time, you're not alone, as much may befall the markets come November's end.

As for the precious metals, in tracking percentage performances from a full year ago-to-date, Gold itself is up but a mere 11% as opposed to this group of equities brethren: GG (Goldcorp) +13%, FNV (Franco-Nevada) +25%, GDX (the prominent exchange-traded fund of the Gold miners) +57%, NEM (Newmont Mining) +78%, and SIL (the popular exchange-traded fund of the Silver miners) +92%. "Ride ride ride the wild surf..."--(Jan & Dean, '64):

Now: much anticipated was yesterday's (Friday's) first peek at Q3 gross domestic product. And, (some might say "conveniently"), it came in at a comparably robust annualized rate of +2.9%, well in excess of expectations and clearly the fastest annualized growth pace since that recorded for Q2 of 2015 (+3.9%). So "bye-bye" Gold, right?

Wrong! Save for Gold's instantaneous knee-jerk seven-point decrease smack on the GDP's release, price fully recovered and then some in less than 30 minutes. Followed was the FBI's much-reprised surprise, spurring Gold higher still, such as to trade above the 1280-1240 support zone for almost a full hour before settling out the week at 1276. Whilst 'tis nothing about which to write home, given Gold's hard selloff in kicking off October, 'twas price's best weekly performance since that rout and evidence that the below-shown purple-bounded 1280-1240 support zone has -- to this point -- contained any further selling:

So, 'tis probably fair to say Gold is not anticipating a vote by the Federal Open Market Committee to raise their bank's Funds rate come Wednesday. Oh you didn't know there's an FOMC meeting this week? Nor, 'twould seem, does anyone else. For 'tis written: "Fed policy shall not conflict with election duplicity." Rather, the financial mainstream is focused on the FOMC's 14 December decision, albeit the fallout following the 08 November election may well find a forgotten Fed having folded and frittering about in the far corner.

Specific to the GDP's +2.9% annualized Q3 growth rate, let's bring up the Economic Barometer. As you know, the GDP is a very bluntly broad-based "kill the fly with the sledge hammer" measure, combining private sector investment and consumption with government spending, plus exports less imports. Perhaps with more precision, the Econ Baro assesses some 50 data points per month for their changes, their revisions, and their expectations. The lavender portion of the below line approximates the Q3 reporting period (essentially August through October). As always, you are the judge:

With respect to herein twice-mentioning Gold's early-October selloff, (price having settled 30 September at 1317, only to then fall as far as 1243 [-8%] in just five trading days), here next we've Gold's percentage track from one month ago-to-date, along with the tracks for both the S&P500 and the Dollar Index. 'Tis interesting to note that from about mid-chart onward, both Gold and the Dollar on balance have been rising together, suggestive of Gold's selloff having been a bit overdone. But then again, as we oft hearken, Gold plays no currency favourites, as ought become more apparent upon "full faith" morphing into "abstract wraith":

On we go to the precious metals' ascending "Baby Blues" and Market Profiles. First for Gold, in this two-panel view we've on the left price's daily bars covering three months ago-to-date, the rising blues dots trending toward a cross of their 0% axis, from which the 21-day linear regression would swing to positive; on the right, the 10-day Profile depicts 1270 as the centerpiece price ideally above which to stay:

Second for Sister Silver, (who arguably ought be first as her upside acceleration is "expected" to outdo that for Gold, the present yellow/white metal price ratio of 72x seemingly "high" vis-à-vis the 25-year median of 64x), her two panels are like those for Gold, her centerpiece price in the profile being 17.65:

And by our using poetic license in calling this "month's end", 'tis time once again to review where we are within the Gold structure in turning to the monthly bars and therein the broadly-defined trading zones which have developed since the All-Time High of 1923 back on 06 September 2011. Whist we've an ever so long upside battling road ahead, 'tis presently better being in the basement ("sous-sol") than being baked. Moreover, as this year's dénouement approaches, there's still time for us to hopefully be incorrect about having thus far precisely picked Base Camp 1377 as 2016's high. We pray that we're wrong:

Finally, these few closing notes:

■ If you've peeked at our page for Earnings Season, you'll have noted that 63% of companies have actually improved their Q3 bottom lines from those of a year ago; we're not quite half-way through the Q3 season, but should that 63% level hold up, 'twill be the best set of year-over-year results since Q4 of 2010 (64%).

■ That said, 'tis a good thing "earnings don't matter anymore", for even with such improvement, specific to the S&P 500, our "live" price/earnings ratio at 35.0x remains double what "it ought be". (Nice to know those days of 50% stock market corrections are behind us, what?).

■ The Eurozone yo-yo is traveling up its string, Spain's rate of unemployment falling below 20% for the first time in some six years: "OLÉ!" German business sentiment, too, is on the move, and -- this just in from our "Just Like That Dept." -- thanks to cost-cutting, Deutsche Bank has returned to profitability! Can you believe it? (But on the "actually doing business" side, their exchange-traded fund unit year-to-date is down some $8 billion... shuussh... don't tell anybody).

■ Across the Channel, banks which had been droppin' are now poppin', the Royal Bank of Scotland posting its highest investment banking revenue in over two years, (which may help with pending "misconduct" charges), whilst over at Barclays, the bond traders came through in helping the bank post a 35% rise in its Q3 profit. (Or to quote James Carville: "It's the bond market, the bond market...").

■ As noted, yes Martha, there is an FOMC meeting this week: 'twould be a heckova Halloween trick if they "pulled the rate trigger", non? Fawgit about it; it ain't gonna happen. But we do get a treat as 20 metrics will have the Econ Baro on stage throughout! Again, unscriptable stuff. Stay tuned!

■ And in closing, apparently, President Rodrigo "Rody" Roa "Digong" Duterte has, through some form of divine intervention, been instructed to cease employing the prolific profanity pervading his parlance. Time as well, ole buddy, to start abiding by the The Golden Rule. So go do the right thing: Buy 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.

Pure gold is so soft that a strong man can squeeze it and shape it.
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