first majestic silver

Gold Thanks The Fed (Despite How It Reads)

Market Analyst & Author
March 20, 2016

With the March meeting of the Federal Open Market Committee now past, on rates their having passed, (as was widely forecast), let's start straight-away with the Economic Barometer as we're somewhat aghast. Regular readers know that come "Fed days", like Elvis, we "leave the building", avoid the FedFawning FinMedia and instead quietly assess the actual FOMC Policy Statement of our own accord. And in parsing through its opening paragraph, we were troubled by that which we read:

Save for the past two weeks of the Econ Baro ratcheting back down, it had been (to the FOMC's credit) on the rise since their 27 January statement (vertical grey arrow), albeit the Baro's overall level remains below that of the 16 December Fed Hike Day (vertical grey line). Moreover from the new statement, as supported by recent rises in personal income and spending: "Household spending has been increasing at a moderate rate, and the housing sector has improved further"; well, folks must indeed be buying houses and not goods, as retail sales slipped -0.1% in February. And with respect to "business fixed investment and net exports have been soft", industrial production swung from +0.8% expansion in January to -0.5% shrinkage in February; further, export and import prices for February respectively fell -0.4% and -0.1%: "Soft" or "Thud"? As for "strong job gains", would not strong "payroll" gains be more accurate? February's average work week fell from 34.6 to 34.4 hours, which as we pointed out two weeks ago was the largest drop in two years (i.e. more folks are doing the same job). How about "Inflation picked up in recent months"? The wholesale measure (PPI) went from +0.1% in January to -0.2% in February, whilst the retail measure went from 0.0% as well to -0.2%. All that said, here's a unique thought: perhaps the Fed is behind the curve; (that or they need a new Policy Statement writer). Either way, as a late great friend of The Gold Update might have put it: "They need to get hip to the haps".

"What is hip..."--(Tower of Power, '73) is Gold. Recall back on 11 February, having rocketed up through the start of the year, that at 1247 we pointed out price vis-à-vis our BEGOS valuation was some 167 points "too high"? Quel désastre! Now here's the awesome bit: this form of valuation (the regressing of Gold's price movements to those of the BEGOS components -- Bond / Euro / Gold / Oil / S&P 500) has supportively caught up in full to Gold's level as we see in the following year-over-year chart: the smooth pearly line is that of valuation, the lower panel being the oscillator (of price less valuation):

Next we go from a year's worth of daily prices to the weekly bars from a year ago-to-date, as Gold continues to endure the whirlwinds of the hardened 1240-1280 resistance zone. One may be heard to cry out: "Oh, my kingdom for 1290!", but lest we forget, those 1290s have been provenly whiny. Gold's key here is to gain grip rather than give it all back. Structurally, that apex at the chart's center (1184) is a very visible level to hold should Gold somewhat fold:

'Course, with respect to that 1240-1280 resistance zone, much of our ballyhoo is toward Gold getting clear above that area, (again only to then have to deal with "The Whiny 1290s"); but that'd be good enough for us to declare that "the bottom is in" (such low being 1045 from last 03 December). Remember: Goldman Sachs sees 1000 in a year's time, (albeit we prefer to give their Gold shorts short shrift). Either way, here again are our criteria as to when we'll say that "the bottom is in", followed by the chart of Gold's daily settles since the highest ever of 1900 on 22 August 2011:

■ The weekly parabolic trend ought be Long ('tis)
■ Price ought be above the 300-day moving average ('tis)
■ The 300-day moving average itself ought be rising ('tis)
■ Price ought trade at least one full week clear above 1280 (hasn't)

Next let's move on to our "Baby Blues", those dots that show us the day-by-day consistency of 21-day linear regression trends. And yes, we must bring Sister Silver into the mix here, for as shown on the right in the following graphic covering three months of daily bars, her blue dots are in robust ascent, whereas on the left, those for Gold continue to work lower, which (as noted a week ago) normally is a portent for a price pull-back. Nonetheless, as we're sure many of you know, the price ratio of Gold/Silver has all but doubled since the Precious Metals Highs of 2011; the bear may thus say "Gold has gone up way too much"; but given our current opening Gold Scoreboard value level of 2547, not only does Gold have ever so a long way up to go, but moreover, Silver is farther behind still. Per their present prices (in round numbers): Gold at 1256 is 35% below its highest trade ever (1923) ... but Sister Silver at 16 is 68% below her highest trade ever (50)! She needs more than just catch-up: bring on some mustard, pickles and high-protein bacon to further power this sterling baby higher!

As for the input from our "To and Fro Dept.", below we've the 10-day Market Profiles for both Gold (left) and Silver (right), their respective settles from yesterday (Friday) being the white bar in each panel, and their near-term support/resistance prices as labeled:

"What about the stock market, mmb, it's lookin' good!"

Squire, your misuse of the vernacular puts us in mind of the FOMC Policy Statement which we parsed at the outset. Rather, I would substitute your phrase "it's lookin' good" for "'tis quite harrowing". In recent articles, we've graphically pointed to the stark lack of supportive monetary inflow for the renewed S&P rally, which continued during this past week: in the last three trading days, the S&P gained 34 points, however the moneyflow was only supportive of +21 points. Underscoring that, the moneyflow itself is "thinning" as we calculate it: one month ago on 19 February, it took $443,888 to move the S&P 500 Index one point (in either direction); today that's down to $386,396; put another way, it takes 11% less horsepower to move the S&P one point today than it did a month ago, (which, if you're part of the stock buy-back binge, may make it easier by your being able to bid your own stock lower prior to scooping it back up). Then of course, if you peek again at the Econ Baro near this missive's opening, the rising S&P is again ignoring the declining Baro (month-to-date). Finally, add in our calculation of the S&P's price/earnings ratio per yesterday's close to be 38.8x, and your money manager's got one harrowing problem of how to explain stuff when it all goes wrong. At least Morgan Stanley "cut" its 12-month target for the S&P from 2175 to 2050. Why, that's where 'tis now! (We're maintaining our S&P target for the low 1400s by year's end).

Toward closing, let's see how it currently stacks up for Gold

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2547
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
Gold’s All-Time Closing High: 1900 (22 August 2011)
The Final Frontier: 1800-1900
The Northern Front: 1750-1800
On Maneuvers: 1579-1750
The Floor: 1466-1579
Le Sous-sol: Sub-1466
Base Camp: 1377
Neverland: The Whiny 1290s
Year-to-Date High: 1288
Trading Resistance: 1267 / 1282
10-Session “volume-weighted” average price magnet: 1257
Gold Currently: 1256, (weighted-average trading range per day: 25 points)
Trading Support: 1254 / 1247 / 1233 / 1230
Resistance Band: 1240-1280
10-Session directional range: down to 1226 (from 1288) = -62 points or -5%
The 300-Day Moving Average: 1162
The Weekly Parabolic Price to flip Short: 1158
Year-to-Date Low: 1061

So: as we proffered a week ago, have you worked "NIRP" (negative interest rate policy) into your cutting-edge cocktail jargon? I'm quite certain Squire has, (although he probably thinks 'tis some kinda hors-d'oeuvre one pushes about on a small plate with a breadstick). But in Japan, NIRP remains the big chirp as their government's already-negative bond yield became more so this past week, the Bank of Japan whilst not (as yet) adding more stimulus, hinting that it shall so do give their even gloomier economic outlook. In fact, under our consideration for inclusion in BEGOS as a secondary market (as already is the Swiss Franc) under the "E" for the €uro is the ¥en. Should we so add it, the ¥en will have at our website its own webpage, detailing margin requirement, daily potential high/low levels, best current Market Rhythm, "Baby Blues", Market Profile, Market Magnets and Market Ranges. So stay tuned.

The incoming Econ Data calendar is fairly light for the new week, but it does include "expected" slippage in existing home sales and durable orders, plus the final revision to Q4 gross domestic product. To which end, we'll stay with Gold as our favourite put-away product!

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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