first majestic silver

Gold Traipses And Trips Into Trimester Three

Market Analyst & Author
September 6, 2015

And thus with two trimesters (plus four days) of 2015's trading sessions now in the books, we find Gold in third place amongst our BEGOS Market Standings of percentage performance year-to-date. Here they are through yesterday's (September 4th) closing:

The standings bring to mind those of a weak division in professional sports, such as football's NFC South (wherein last season Carolina finished in first place with a losing record). To be sure, sports is serious business, but more so is money. And to see the Swiss Franc atop our standings, moreover sporting the only winning record at +2.2%, is very telling, especially when followed by both the Bond (-2.5%) and Gold (-5.1%). Those latter two may have losing records, but when the podium is now made up of these three markets, after some six years of bubbly baby-boomer excessive ex-earnings equities effervescence, it brings to mind the rather daunting differential calculus term "inflection point". (For you WestPalmBeachers down there, that is a kinda "end of the road" thing).

"But mmb, you left the Dollar out of the standings..."

Squire, that is strictly due to the Dollar not being a component of the BEGOS Markets set. Yes, year-to-date topping the standings at +6.2% would be the Dollar Index, however its being a calculated concoction from six other "bow-wow" currencies, let alone the Dollar itself having been debased sevenfold since 1980, makes any analysis there rather like grasping at air.

Of course, what has the appearance of really falling through air are equities. We say "appearance", for although the S&P 500's down days of late have loomed large, again 'tis been but a generically-speaking "10% correction" thus far, or more precisely -12% from the all-time closing high of 2130.82 on 15 May down to the 1867.61 close of 25 August. Let's use another sports analogy to put that in perspective as follows:

A Formula One racing event is not just the race itself. Each event starts with three sessions of practice, followed by a qualifying session to set the race cars' starting positions. For the S&P, that is essentially our view of the last three weeks, a preparatory period for the race itself, for which we expect the start is imminent, and the duration to extend through September if not well into October. For after all, 'tis the traditional season for market turmoil and the S&P certainly has come through qualifying now positioned on the starting grid to "Slump & Plunge", (akin to our other descriptions for a "Valuation Detonation" or "Look Ma No Earnings Crash"). We'll herein look at the S&P within the guise of our Economic Barometer, but first let's get to Gold vis-à-vis its weekly bars.

And as we below see, Gold this past week was unable to string together a sixth consecutive "higher low", albeit it breeched that of the prior period by just 1.2 points. The rightmost parabolic red dot is now down to 1162, 40 points above the present price of 1122. So, with Gold's "expected weekly trading range" now at 37 points, were a robust up week to ensue, it ought flip the parabolic trend back to Long:

Yet, having passed through another month, our year-over-year view of Gold's equities buddies remains ghastly. Here we've the percentage tracks of the yellow metal along with the Gold Bugs Index ("HUI"), Newmont Mining ("NEM"), Goldcorp ("GG") and Royal Gold ("RGLD"):

It remains somewhat puzzling that the Gold Price ( )   isn't broadly moving higher given an inexhaustible number of reasons for it to so do, the overarching media/analyst rationale for it not flying higher being the near "certainty" of the Federal Reserve Bank nicking up its Funds rate a notch, (for which we remain in the "shan't" camp). Such excuse does however raise this question: "How many times must Gold be sold because of an anticipated rate hike?" Surely 'tis in the price a hundredfold, but the timidity remains to get aboard the Gold Train. One might opine that upon the S&P falling pell-mell, Gold surely shall look swell. But recall that even early on during the Black Swan of 2008, all of the BEGOS Markets fell, despite both Gold and the Bond suffering far less damage than did the other components.

Still for the present, given the ramped up volatility in the S&P, the Gold trade continues to be uncannily narrow, our referring to it a week ago as being somewhat docile. Here next, we've updated our one-year views of "expected daily trading range" (EDTR) for both Gold on the left and the S&P500 on the right. Worlds apart they are:

And just in case you're scoring at home, the "lock limit" overnight range for the S&P futures remains 5% up or down. The last time 'twas triggered? To the downside on 24 October 2008. Today the limit equates to a move of 96 points. Given that in the last two weeks we've had three full intra-day trading ranges of 85 to 136 points, don't think it too unlikely to wake up one morning and find, as they say, that "We're locked limit down in the SnPs!" Again, 'tis the season and this time with sound reason. Which in turn leads us to the Econ Baro within which we find the not so complacent S&P (red line):

Don't tell that to International Monetary Fund Managing Director Christine "En Garde!" Lagarde, who sees weaker than expected global economic growth, inclusive of that Stateside as well as in other advanced economies, with the prospects of a U.S. interest rate hike being given partial blame. Madame Lagarde has already said that the Fed ought put off a rate rise until next year, given the fragility of economic recovery. Darn those Federal Open Market Committee folks for not perishing such thought of tightening, eh? Especially as our Institute for Supply Management just recorded the lowest factory activity reading in over two years. Elsewhere, Australia had its slowest overall economic growth as well over two years. Also, we're reading that Canada is falling into recession. And further on the factory orders front, Germany's just dropped by an unexpected amount. As for EuroZone unemployment falling to a three-year low, one must wonder if they're simply using the modern-day U.S. ploy of employing two part-time persons to do one job. And then there's China: nuff said.

Fortunately, there's also Gold. And trading at less than one-half the value it ought be by our opening scoreboard display, such upside road extends quite a long way. Again our initial milestones from here are as follows: flip the weekly parabolic trend to Long (as we saw above at 1162), get price above the 300-day moving average of 1209 (and curl the average itself upward), and have Gold settle a week that clears the 1240-1280 resistance zone, (i.e. with a low above 1280). By so doing, we can then declare that "the bottom is in" toward next turning to deal with the broad-term structure that we see here of Gold's weekly bars since its All-Time High:

As for the near-term, in the following two-panel chart we've on the left Gold's daily bars for the past three months with their "Baby Blues" depicting the consistency of 21-day linear regression trend, whilst on the right is the 10-day Market Profile, the labeled price bars being those with the largest amounts of traded contact volume for these past two weeks:

Finally, in the midst of what is a truly horrific crisis of humanity spreading into Europe, not to mention the market mis-valuations of which we write, the imbalances thereto pointing toward some serious financial fallout, we'd like to wrap it for this week with the following headline which did give us pause to smile: "Paris suffers baguette ‘shortage’". As quoted in the FinTimes, one Aude Debout said “I find myself buying more sliced bread from the supermarket — and that’s not even really bread.” Amen to that, sister, the moral of the story being: if you're heading over to Paris, BYOB; don't be without such warm Golden Dough!


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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