first majestic silver

Gold's Nominal Near-Term Negativity

Market Analyst & Author
August 28, 2016

If the final trading day for 2016 had been last Friday, Gold having settled at 1324 would be (as presently 'tis) a gain of 24.8% for the year, the fifth best annual performance of the last four decades. Yet with over four months still to run in 2016, extrapolate that pace to year's end and we'd find Gold settling this full year at 1463 for a 37.9% annual gain, its best since 1979. Not only can a lot happen between now and year-end, but from the "You Ain't Seen Nuthin' Yet Dept." we'd not be surprised to actually see that 1463 level, in spite of having revised our forecast high for this year to "only" Base Camp 1377, which after trading on 6 July has yet to be breached. (And should Gold clear 1377 for at least one week, we 'spect we'll revise our year's target yet again up to the 1430s).

We're merely making mention of this as in our prior two weekly missives we've pointed to Gold's "near-term path of lesser resistance [being] lower" and that the "near-term -- strictly technical read -- is mildly bearish." Which is exactly what Gold has been reflecting, even in the face of yesterday's momentary Fed Chair fundamental flier up to 1346, which then fizzled. For as we turn to the following three-panel graphic of the last 21-trading days for Gold, Silver, and the Swiss Franc, (the latter's Friday fallout representative of the Dollar's seventh strongest session year-to-date), the negative writing for the precious metals has been on the wall these past few weeks. And the "Baby Blues" -- those dots which measure the day-to-day consistency of the 21-day linear regression trends (diagonal grey lines) -- pointed the way, their en route having run out of puff, thus abetting these lower levels:

Does this concern us? Not really. Gold is plentifully padded with supports of all sorts, including structurally so at 1306, thereunder by those dreaded Whiny 1290s, and further by the 1280-1240 support zone. (See, too, the Gold Stack at the foot of this week's piece). In fact, we're far more fascinated with how 'twill all play out to the upside rather than to the downside through the year's balance. In chatting this past week with a charter reader of The Gold Update, I said (paraphrased) "The most interesting price to watch for the rest of this year is 1377, and upon returning there, whether we can get up through it, or not." So further nominal near-term negativity notwithstanding, 'tis all about the then ensuing bounce back to the year's high, and what then happens at that point. For the present, here are Gold's weekly bars, which indeed appear more consolidative than negative:

As noted, Gold had an intra-session bounce yesterday to 1346 amongst the FedFolk frolicking about up there in Jackson Hole. 'Tis interesting how the more irrelevant become the Federal Open Market Committee follies -- indeed how more widespread is becoming that opinion -- bizarrely the more excited anticipation we hear and read for every upcoming address, member interview, and gesture therein. (Remember when the entirety of the monetary policy-focused world would be fixated on the thickness of Alan Greenspan's briefcase as he'd trot up the steps into the Eccles Building on Constitution Avenue?) Now a decade later, the repetitiveness through this past week of such anticipation for "Janet Yellen's Friday speech at Jackson Hole" was virtually non-stop. And yet, if we assume the FOMC has been reduced to a sideshow, who cares? Still, in the wee hours of yesterday (Friday) morning on Bloomy radio, we heard that "Bond traders are sitting like a coiled-spring waiting for remarks from Fed Chair Janet Yellen", or as the FinTimes put it "Investors wait for hints about pace of US monetary tightening", only to then get what was expected: nothing, (which Gold loved), and then a tinge of tightening bias, misguided or otherwise, (which then found Gold unloved).

And why must it be "tightening"? What about "rescinding"? Today's monetary policy as instituted by nudging the rate this way or that is akin to Joe Sixpack's keeping his old car going by changing its spark plugs to bandage a roughly running engine, rather than having it dropped, its crankcase split open, and the worn-out values, rings, seals, etc. replaced. The same can be said for the Fed.

Indeed, both the Fed and market analysts alike seem driven by "impressive" headline data, rather than by the wearing bearings within the economic engine itself. Oh, the Fed "is close to hitting targets for full employment and 2% inflation", says FedFischer. Oh, "the labour market is improving", says FedDudley. Oh, "waiting too long to lift rates could be costly for the economy", says FedWilliams. Oh, "U.S. economic indicators are looking healthy", says AnalystGan. Here's what we say: running your Formula One car with no wing also is "impressive", until upon entering a curve, the bounds of adhesion are exceeded, and instantaneously you're traveling backward in a forward gear, the car having swapped ends. Then you're forced to rebuild it. Similarly, the Fed will be forced to rebuild itself when it all goes wrong. In the meantime, here's the circuit upon which the economy's driving; looks like a downhill sector to us:

Economic weakness ignored, again, the Dollar finished the week with an upside flurry from the frolicking Fed follies: sufficiently so such that all the BEGOS Markets suffered a down week. This peek for the week from the "Misery Loves Company Dept."

And specific to the precious metals, we next turn to their 10-day Market Profiles, yesterday's settles (the white bar in each panel) buried deeply therein. For Gold on the left, having run out of near-term trading supporters, 'twould not be untoward to take a run at the 1306 structural support (of 02 May). For Sister Silver on the right, should 18.50 fail, her like structural support (also of 02 May) would come in at 18.06:

So as to how it all stacks up, here we've...

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2629
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
Year-to-Date High: also 1377 (06 July)
10-Session “volume-weighted” average price magnet: 1343
Trading Resistance: 1325 / 1329 / 1343 / 1348 / 1352 /1355
Gold Currently: 1324, (expected daily trading range ("EDTR"): 15 points)
10-Session directional range: down to 1321 (from 1364) = -43 points or -3%
Trading Support: None; (Structural Support: 1306)
Neverland: The Whiny 1290s
The Weekly Parabolic Price to flip Short: 1277
Support Band: down to 1240 (from 1280)
The 300-Day Moving Average: 1192
Year-to-Date Low: 1061 (04 January)

Finally, we've these few notes:

■ You many have read this past week about Morgan Stanley being tapped for apparent mismanagement by its own employees of their 401k retirement plan. One can only wonder what Henry M. and Harold S. would have to say about that. It does beg the question: how is yours being managed? Got Gold?

■ MarketWatch has assembled an article with some ten charts, dutifully including an earnings table, suggesting "Why the Stock Market May Be Ripe for Correction." From our purview, all that is really necessary to stave off a "crash" (our more descriptive lexiconic selection) indeed are earnings. Either double them, or halve the stock market. Got Gold?

■ Remember bitcoin, that stuff borne of "blockchain technology" that is basically a bunch of algorithms effecting "cryptocurrencies" which are verifiably traded using a computer network that exclaims "Look Ma! No central ledger!"? Well, four major banks, (one of which we're embarrassed to say is Swiss), expect to launch another one of these phreak phaux phantasms in 2018 toward making intra-bank et alia financial settling more efficient. Imagine the plug gettin' pulled on that baby. Oh my, have you Got Gold?

■ And an "op-ed" in the FinTimes this past week suggests that "Negative rates [are] not the drama they seem." 'Twas a fair piece, although to us oldsters and the yield chasers out there, having to pay an entity to save your dough is, again, a bit like that Formula one car having swapped ends. As for the drama bit, 'twill take on that of Wagnerian proportions upon banks converting your deposits into their equity. Oh mercy, we trust you've Got Gold!

So toward September we go with 21 metrics coming into the Econ Baro in the new week. Shall another bazillion payrolls have been created in this election year's August? Mind your Gold and, at least, it hold!

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.

The melting point of gold is 1337.33 K (1064.18 °C, 1947.52 °F).
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