Gold's Geopolitical Routine Rewind

January 12, 2020
Market Analyst & Author

Well, dear readers, again it has happened. Or, for those vacuum-bound wherein life is but Gold's week-to-week net closing price, nothing has happened, given it having settled yesterday (Friday) at 1563 to eke out a wee weekly gain of just eight li'l ole points.

Greetings from Monaco wherein, too, a lot can happen without one realizing anything has happened, such as Saturday's sun having already risen from the sea. Thus with time at a premium (when is it not?) let's dive into this brief installment of The Gold Update.

The price of Gold hasn't fooled its watchers a bit. Indeed it has just done what we've herein anticipated 'twould do over these last two weeks of geopolitical drama: price went way up ... and then it went (per a favoured quip) "back from whence it came". Geopolitically from an ostensibly pro-active event to one of retaliation, all-in-all waning into de-escalation, Gold's price rocket-shot from the prior week's low of 1514 up to this past week's high of 1613, a 99-point, +6.5% excursion so sufficiently swift that with respect to our forecast high price for this year of 1675, we found ourselves exclaiming, "Wait a sec will ya, the year's barely started out there!" But then as is its wont, Gold yet again routinely rewound itself in giving back the bulk of the geopolitical gains as we below see per the rightmost weekly bar in this view of price from a year ago-to-date, the new parabolic blue-dotted Long trend increasing its gait:

Still on occasion during our Sunday Investors Roundtables, 'twill be put forth that "Gold needs some big event to make it go up." Our stock response is rooted in that which just occurred: geopolitical events but temporarily bump price. 'Course, the real "big event" -- indeed the one which is so large and moreover ongoing such that we "can't see the forest for the trees" -- is that which is presented in the Gold Scoreboard at the top of these weekly pieces: currency debasement. By which, in having just recently passed a milestone level, is Gold today at our corresponding value in excess of $3,000/oz. Or to summarized it succinctly, geopolitics are for the Gold trader; currency debasings are for the Gold investor.

Quickly zooming along, the mainstream investing choice seemingly as ever continues to be in the stock market, which we measure by the S&P. Our "live" honestly-calculated price/earnings ratio for the S&P 500 today is 40.1x, the heights for which few adjectives remain to describe. We see that Bob Shiller's "CAPE" version is 31.1x, a level that on his scale has preceded major market fallouts. Tick...Tick...Tick... Recall we're sensing into the StateState elections this coming November that one ought be out of equities, if not outright short the S&P, regardless of the voting results.

All that said, still ticking up nicely is the Economic Barometer. This past week's reports included a ramping up in the Services Index provided for December by the Institute for Supply Management (albeit not so for their Manufacutring Index), along with a marked increase in private sector jobs per the data from Automatic Data Processing (albeit vs. a slowing in payrolls growth as recorded by the Department of Labor Statistics). Nonetheless, November's Trade Deficit shrank and Wholesale Inventories were worked off, all netting to the rising state of the Baro:

'Twould thus seem per the above picture that the Federal Open Market Committee's sway to leave further interest rate changes at bay is (for now) the way to play. Globally however, the World Bank -- as noted in its just released Global Economic Prospects report -- is giving a slight trim to their economic expansion expectations. Either way, specific to Gold: as the "faux dough" continues to be made, the yellow metal ought remain an upside trade.

To that end, let's quickly go to Gold's daily bars from the last three months-to-date on the left and the 10-day Market Profile on the right. Mind Gold's baby blue dots of linear regression trend consistency for weakness below their +80% axis, which would then in turn suggest lower price levels near-term:

And here is the same presentation for Sister Silver:

'Tis a busy calendar next week for the Economic Barometer. Also we get the Federal Reserve Bank's "Beige Book" on regional economic conditions; and Phase One of the US/China trade deal is set to be inked in Washington. Again, pardon our brevity this time 'round as things are, shall we say, "afoot" here in the Principality. Fortunately as the sun rises from the Mediterranean, so we look to Gold rising as well -- near-term turbulence notwithstanding -- as the year doth propel!


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.

Gold is one of the most recycled substances in the world.

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