first majestic silver

Gold Up In An Upside Down October

Market Analyst & Author
October 25, 2015

gold bars"What's up, Doc?" Try the Dollar, the Stock Market ... and Gold. Who knew? Surely such positive correlation amongst these three specific markets is a phenomenon not normally found in nature. But on the heels of our having noted a week ago how un-October-like things are, "Whoomp! There It Is!"

Time was when we used to joke about headlines such as one run this past week by Reuters: "European shares turn higher as investors shrug off poor earnings". Our prior missive already highlighted this sour Q3 Earnings Season, bottom lines as tried-and-true measures of market valuation having become an irrelevancy in today's perverse pumping of the great bubble that continues to defy any law of inelasticity.

Indeed as a highly-respected market colleague just put forth in a quarterly tele-conference to clients, the six-year ratio of the S&P 500's percentage growth to that of the Gross Domestic Product (9x) is far higher than 'tis previously been (6x), from which such like levels have resulted stock market crashes. Nice to know that Cash is King and therein that Gold, too, is Cash.

That said, such an upside down October is reminiscent once again of the time-tested 1992 quote from then Vice Presidential candidate Al Gore: "...everything that should be down is up!" As noted, the Dollar Index, the S&P and Gold are all up this month, an irregularity by conventional wisdom. And no better was this wry positive correlation exemplified than during European Central Bank President Mario Draghi's pro-€uro Quantitative Easing remarks from Malta on Thursday. The following chart tracks these three oft-opposing markets from the commencement of the President's address over the subsequent two hours:

gold chart

"But gold did fall at the start there, mmb..."

But that's the beauty of it all, Squire, for Gold then gained back its grippity in spite of the increases in both the Dollar and the S&P. Gold "expectantly" ought have been absolutely trashed and with thrown out with the EuroCurrencies, baby and bathwater, but 'twasn't! Such is even further emphasized in the following tri-panel graphic of the 21-day charts (left-to-right) for the Euro, Swiss Franc and Gold. Note the baby blue dots which depict the consistency of each market's linear regression trend, (diagonal line):

To be sure, Gold -- whilst presently +4.2% for the month -- was off for the week, but only subtly so given the violent veering off track by the EuroCurrencies, not to mention the October up-crash of the S&P as it re-revels in seeing QE and central banks furthering their irrelevancy. The Dollar's rising as well again reminds us that at the end of the day, Gold plays no currency favourites. Moreover given the normally negative effects upon Gold that were very much muted this past week, 'tis all-in-all yet another arrow in the quiver labeled "how we'll know when the bottom is in". Moreover as we bring up Gold's weekly bars, the rightmost appears simply as normal ebb within the overall flow of the rising parabolic Long trend:

One cautionary note here: the daily parabolic study on Gold is set to confirm as having flipped to Short at tomorrow's (Sunday's) opening. The median downside follow-through of the five previous ShortSide flips is 22 points; were that to play out in this case from the present 1164 level, we'd see 1142 trade. Yet per the above graphic, the weekly parabolic study allows for such price ebb to occur without nixing the flow of its broader uptrend. (Courtesy of the "Nothing Moves In A Straight Line Dept.")

Now let's bring Sister Silver into the picture with the Market Profiles for the Precious Metals, whose prices held their ground reasonably well in spite of the burgeoning Dollar and S&P. Still, the ever-evolving profiles appear somewhat less supportive than we've had in recent weeks. For Gold on the left you can see those three labeled resistors in need of being tackled to open up the field toward 1200. For Silver on the right, the more notable resistor is just above the present 15.80 area at 15.85, and for her to clear the top of the profile would in turn target the Springtime levels of the 16.50s:

In putting a bow on this week's piece let's talk The Economy, for 'twill be the key subject -- and a spooky one at that -- for the month's final drive into All Hallows' Eve. Did you read this past week of a poll in which two-thirds of economists queried expect the Federal Reserve Bank will raise its Funds rate in December? At what are they looking? Certainly not the Conference Board's lagging report of Leading Indicators which just came in for September at -0.2%, the Economic Barometer a week ago (and well before) having already clued us in 'twould be a negative reading. One can only conclude that the economists are neither paying attention to the Baro...

...but then again you know what they say: even in economics, re-tell an inaccuracy often enough and it becomes both the truth and 180° out of phase with fact. "The economy's great, so up with the rate!" 'Tis akin to those go-go "fee or flee" analysts who declare market valuations as being "cheap" without having actually done the math, which now puts our "live" reading of the S&P price/earnings ratio up at 36.7x. No surprise there, for as we see in the Baro, "they've" placed the price of the S&P back up where 'twas, without earnings having led, and FedFear having fled. That said, here's what the ensuing week holds in its stead.

The new week is fairly replete with incoming EconData, including both a non-event and one of discontent:

The non-event is the Federal Open Market Committee's statement due Wednesday at 11:00 Pacific Time, following which the Fed Chair, faltering or otherwise, shan't be held to a press conference. All we get this time 'round is the statement from 17 September, the date smothered over with "white-out" and then written upon in crayon with "28 October".

The event of discontent comes early the next morning on Thursday upon the Bureau of Economic Analysis releasing its first read of Q3's gross domestic product. Look above at our Econ Baro ... then consider there are estimates for the GDP's growth to have exceeded 2%. Should it come anywhere near that figure, then excuse me still again whilst I'll fall down laughing. The aforementioned "Leading Indicators" for the three months of Q3 came in respectively at -0.2%, +0.1% and -0.2%. Thus the average for Q3? -0.1%, (just in case yer scorin' at home).

An upside down October indeed. And unsustainably so. Hang onto yer dough, as so is 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.

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