first majestic silver

Gold's Resistance Still Not Futile

Market Analyst & Author
March 27, 2016

A purposeful play on words, that title: Gold's 1240-1280 resistance zone not being futile means that 'tis working, repelling price from successfully clearing above it. In other words, once resistance is futile, Gold will be up into the 1300s -- or at least dealing once again with Neverland, aka "The Whiny 1290s". Nuthin' is easy and of late it ain't. After briefly "Dancing on the Ceiling"--(Lionel Ritchie, '86) at 1287 atop the resistance zone (just two weeks ago on 11 March), Gold now finds itself some 70 points to the South, settling out the abbreviated trading week on Thursday at 1217.

However, in maintaining positive perspective: time is the issue here, as characterized by the following two-panel graphic. On the left is our familiar month-over-month (21 trading days) percentage track of Gold along with that of the S&P 500; for Gold, 'tis fairly yucky. On the right we've the same markets as measured year-to-date (57 trading days); for Gold, 'tis quite plucky:

Moreover, both Gold and Silver remain far and away the best year-to-date performers of the BEGOS Markets (Bond, Euro/Swiss, Gold/Silver/Copper, Oil, S&P), the full standings of which we'll herein present in a week's time. But to this point of 2016, Gold is +15% and Silver +10%, with Oil running a single-digit third at +7%. And as you can see above-right, the S&P's net change for the year thus far is one big fat zero (0%), despite its rather robust run-up over the past six weeks.

Still, specific to Gold's 1240-1280 resistance zone, 'tis doing for the present that which it ought. Gold's accelerative rise this year -- which in the following chart of the weekly bars is starkly depicted by the steep ascent of the blue parabolic Long dots -- has not surprisingly run out of puff in that resistance zone. We say "not surprisingly" given price's having raced right past the 1191 prior price peak at mid-chart (per the green arrow of last 16 October), but more so due to the purple-bounded resistance zone having been a staple of this weekly chart these last few years: 'tis the ideal rest stop on Gold's road to recovery. As for how low the yellow metal might near-term go, articles as well as the mailbag were rife this past week as to the upper 1100s being "The Place" to back up the truck and load Gold. That area does appear destined for a test, especially given (for you parabolic dot counters out there) the current up run of 10 dots having been typical for the duration of Long weekly trends which we've had since Gold's All-Time High (of 1923 on 06 September 2011) and -- as we'll further see -- the "Baby Blues" are falling. But as for the below stated "flip" price of 1174, that number is accelerating at a rate of some +17 points per week, meaning when we next meet, said measure should be close to the same mid-chart level of 1191. And with the "magical" upward revision to Q4 Gross Domestic Product that we just had yesterday (Friday) whilst the markets were closed, Gold ought naturally remain pressured at least in starting the new week:

With respect to our having modified the upward revision to Q4 GDP as "magical", let's turn to the Economic Barometer. As you percipient perusers of incoming data out there understand, a quarter's GDP is thrice-reported: initially as an "advanced" reading, second as a "preliminary" reading, and then as a "final" reading. The change from "preliminary" to "final" is not often dramatic: but when it came in yesterday as having popped an additional 0.4% from +1.0% to +1.4%, 'twas a bit of an eye-catcher. So, of course, we looked into it. And in going back through the 71 quarters of GDP data we've recorded since 1998, this +0.4% leap specifically from "preliminary" to "final" tied for the 7th largest. Think 'tis an election year here? Just sayin'...

'Course, in the midst of the GDP revision came a slowing in StateSide exports, as well as a marked 7.8% reduction in corporate (pre-tax) Q4 profits, in turn leading to the largest year-over-year quarterly decline in corporate earnings in eight years. Are we therefore surprised that our current "live" reading of the price/earnings ratio for the S&P is 39.1x? No. Which in turn begs the question, would we be surprised should the S&P halve itself? No.

Meanwhile, Federal Reserve Bank of Richmond president Jeffrey Lacker this past week voiced his confidence that inflation will return to 2 percent; (as you know, 'tis been going backward). More inflation means more dollars, (as if the present $12.5 trillion [M2] aren't enough), more dollars inevitably means a higher Gold price (to which we're still not even halfway) as well as footing for higher interest rates. And as you'll certainly recall, when the Fed Funds rate rose from 1% in 2004 to 5% in 2006, the price of Gold went from 400 to 650 (+63%). Cha-Ching.

What's not been cha-chinging, but rather clanking in recent years, is Silver. We noted a week ago in pointing to the price ratio of Gold/Silver that King Gold was 35% below its highest trade ever, but Sister Silver was 68% below same. So certainly worth a graphical view, below we chart this ratio from Silver's All-Time Closing High of 48.470 on 28 April 2011 through this week's Thursday settles of Gold (1216.7) ÷ Silver (15.200) = Ratio (80x) ... at the start of the chart 'twas 32x:

This is what happens when, as Silver, you're considered to be 50% money and 50% manufacturing material. On occasion I've shared with folks that if they put Gold and Copper into their Osterizer and press the button marked "Purée", the result is Silver. And given that the price of Copper has fallen (as of that same 28 April 2011) by the pound from $4.2690 to $2.2380 (-48%), 'tis no wonder Sister Silver has stumbled around in her industrial metal jacket, rather than purely prancing about in her precious metals pinstripes toward at least trying to maintain a steady price ratio to Gold. But upon getting a substantive Precious Metals bid, watch for Silver's price growth on a percentage basis to rocket past that of Gold.

Next as mentioned, here are the "Baby Blues", which denote day-by-day 21-day linear regression trend consistency. And as we look below left across the three months of daily bars for Gold, as anticipated, the blue dots are pulling down price, whilst below right we're finally seeing Sister Silver give in as well. But as for the aforementioned notion of Silver's potential to out-accelerate Gold, from their respective lows of some four weeks ago, the yellow metal rose as much as 6% ... and the white metal by as much as 11%:

As for their respective 10-day Market Profiles, both Precious Metals have made the full traverse from the heights to the depths, the white bar below in both panels being Thursday's closing levels for the week, along with the overhead trading resistors as labeled:

In closing, we've marking the arrival of an early Easter, which on balance once in every five years comes prior to the end of Q1. It thus also marks the end of many-a-spring break which have been scattered all about March's mostly winter calendar. Throughout my years of schooling, we didn't have any spring break: we just went to school. In any event, perhaps with "everyone back" we'll finally get a spring break from the unsupportive, thinning money flow that has characterized the 13% rise in the S&P over the last six weeks, throughout this spring break here and that spring break there. Time instead to sit down for the annual rite of spring: going through (per a piece in the Washington Examiner from last April) the 74,608 pages of the federal tax code. Your StateSide share is due just 21 days from this writing, and heaven forbid you screw up. So start studying. Study as well the 18 incoming metrics to be built into the Econ Baro in the new week. And keep as well a studied eye on who's guarding your Gold: 'tis worth its weight and then some ... for resistance shall become futile!

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 term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.
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