first majestic silver

Is Gold's Year Done…Facing Fed's Gun?

Market Analyst & Author
November 20, 2016

Let's start with this quote from last week's missive following Gold's post-election fallout: "Technically, we ought label this as 'technical damage'; however, given our expectations of the markets remaining nothing short of zany over the ensuing weeks, we hesitate to place that moniker on the yellow metal just yet, and thus what we sensed has happened here is the downside overshoot of support by the trading herd, rather than Gold going deservedly over the falls."

Now a week hence, ought we confirm Gold's having suffered "technical damage"? Yes.

Gold's having traded the entirety of this past week below what has now morphed back into the 1240-1280 resistance zone makes it so. And more so as "zaniness" is quickly being wrung out of the markets such that expectations for a swift Gold pop back up into the 1300s would at best instead be more of a slog. Further, this past summer upon Gold's clearing above 1280, 'twould sadly appear for the year that the revised high for Base Camp 1377 was then precisely achieved on 06 July, "and dat's all she wrote." Bummer.

"Uh mmb, it's still only November..."

One of your more brilliant observations there, Squire, albeit Gold's having settled out the week yesterday (Friday) at 1207, indeed below the 300-day moving average of 1223, price is now -170 points (-12%) below Base Camp 1377. 'Tis probably of little comfort to the "buy high guys" and/or the "no stops flops" out there to pad Gold's gutting by noting that price presently is +14% for the year-to-date. But with just 28 trading days left in 2016, in effect reduced by the every-expanding array of holidaze and an apparent interest rate hike in the balance, Gold appears done for the year -- were the end of which to be right here -- would actually be its best of the last six. But of more perspective import: the end of the year is not the end of Gold.

"Oh that's brilliant too, mmb..."

Very funny, Squire. Just ensure you never lose sight of the following picture: 'tis but a wee reminder that Gold's hopeful surge to pursue the pace of made-up-money must be nothing short of massive:

Nearer-term, we've two technical notes of concern. First, as noted, Gold's settling out the week at 1207 finds it below the 300-day moving average, (in three of the last five daily closes), for the first time since early February. Bear in mind, arbitrarily or otherwise, the 300-day moving average has been Gold's broad-based supporter in bull runs and its broad-based resistor in bear runs. Let us thus not run too far below it:

Second is with respect to Gold's structure across a year's worth of weekly bars as we next see. The rightmost descending, red-dot depicted parabolic Short trend notwithstanding, please note the horizontal white line drawn from about mid-year-to-date: that is the low price of 1199 from 31 May. This past week's low was 1201: not to quibble over a few points either way, but to find Gold being bandied about in the upper 1100s would not bode very well for further recovery this year. In fact, should we find Gold at year's end to just be stuck back up in the 1240-1280 resistance zone (as bounded by the purple lines) we'd take that in a heartbeat toward closing out (as noted) the yellow metal's best year since 2010:

'Course, unless you've been out there at Pluto surfing the waves of its newly "discovered" subterranean ocean, you know that Gold has been (to put it gently) back-burnered by an expective sentiment for real economic growth, in turn feeding inflation, and thus fostering a Federal Open Market Committee vote to resume nudging up their bank's rate(s). Regular readers also know we've said that they shan't so do. But barring a sudden El Plungo in both the stock market and Economic Barometer pre-FOMC 13/14 December meeting, we'll be resigned to go with the rate hike flow. For as the collective FedHeads regularly state, their decisions are data-dependent. And the Econ Data coming into the Econ Baro of late is rate hike supportive, the FOMC returning to relevancy:

To be sure, there are still some 17 holiday-happy trading days between now and the FOMC's policy statement (followed by Chair Yellen's press conference) on 14 December. So not to dwell too much on the Fed just yet, we've nonetheless this from "The Fed's Behind The Curve Dept." per the Chair's stating before Congress' Joint Economic Committee on Thursday that delaying higher rates "...also could encourage excessive risk-taking..." With our live price/earnings ratio of the S&P 500 having risen from the depths of the Black Swan's 13x to today's 33x, we'd say, Madame Chair, such excessive risk has already been taken.

As for the Doggie Dollar, the strength of which is merely relative to that of its other foundationless bow-wow peers, let's put into perspective where 'tis. Yes, the StateSide election has made many-an-entity sufficiently awestruck such as to back up the truck and load up on the Buck, in turn extending the Dollar Index's rally from the year's low of 91.880 to just a tad beyond its present level of 101.425. In round numbers, this 101 handle places the Dollar 42% above its all-time low of 71 in 2008 ... which means 'tis 39% below its all-time high of 165 in 1985. (We still have from that year the rate sheet distributed daily to our desks at Barclays touting 10 French Francs/Dollar and 2000 Italian Lira/Dollar). And as a keen-eyed reader pointed out to us this past week, millennium-to-date, this 101 level is a pristine .618 upside Golden Ratio retracement. "Dollar strength" indeed: a Swiss Franc still costs a buck; do ring me when I can again get one, (as was the case back in '72) for 25¢. That was true Dollar strength, even with Nixon having just nixed the Gold Standard. "Arf-Arf".

In turning to the shorter-term views for the precious metals, one might cue up on the ole turntable Glenn Yarbrough's 1965 hit "Baby The Rain Must Fall"as are those "Baby Blues", which indeed have been singin' the blues for both Gold on the left and Silver on the right. Both panels span the daily bars for the last 63 trading days (three months), the cascading blue dots denoting the blown consistency of what had been a pre-election up-binge. Painful for the holders, yet presents for the scaler-inners:

As for the respective 10-day Market Profiles, they've been pounded well-down the well as we next see for both Gold (left) and Silver (right):

So: nowhere to go but up for Gold? Wouldn't that be lovely. But the 1199 "white line" at which we looked in the weekly bars chart appears tenuous, especially as the "Baby Blues" have plenty of room to further fall, although that phenomena can be curtailed by price abruptly turning back up. Nevertheless, lest the selling of the herd be deterred, these are dicey days as we drive toward the Fed, it's "finger on the trigger"--(Donna Summer, '82) getting ever more itchy.

Still, there remain Gold Positives here, there and everywhere, the "M2" chart herein being the boldest of the bunch. Here are a few other fresh ones of note:

■ Japan's Q3 gross domestic product coming in at an annualized 2.2% may have beaten forecasts; however, with bond yields on the move post-StateSide election, the Bank of Japan has quickly put in place a program of unlimited bond buying. Gold likes to watch those ¥en press rollers a tumblin'.

■ Making cars that roll on forever, good ole VW in trying to re-brand its image from its emission dereliction is going to let go some 30,000 folks. The good news is that at least "Atlas" is easier to say than is "Tiguan" or "Touareg". Pour yourself a dark Gold glass of Thurn & Taxis Weissbier.

■ The Bank of Cyprus, the island nation's largest such commercial entity, is going to apply for listing on the London Stock Exchange, which is fine and dandy. But the bank is also going to delist from the Athens Stock Exchange. So much for a vote of confidence, eh? Got Gold?

■ Finally, this is just the second time we've penned The Gold Update on a 19th of November, which as all of you obviously know, is the day we celebrate La Fête Nationale Monégasque. (I ought invoice their Office National de Tourisme de Monaco over there on the Boulevard des Moulins for a fee, to be remitted in 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.

Pure gold is so soft that a strong man can squeeze it and shape it.
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