first majestic silver

The Reluctance To Sell Gold

Market Analyst & Author
February 17, 2019

'Twas almost as if listening to oneself on the radio, 'cept that 'twasn't oneself. With that tease, let's first roll back to this bit we penned last autumn when writing from across the pond at our favourite beach-side bistro. You may recall the owner "...whom we've know for better than 30 years, asked me: 'Which do you like better? The Dollar? Or the Euro?' Response: 'The Swiss Franc. And get some Gold as well.'"

Now fast-forward to this past Wednesday's wee hours. Emitting from bedside radio came the voice of one Patrick Armstrong (Plurimi Wealth's CIO) who -- upon being asked by the Bloomy interviewer which was better, the Euro or the Dollar -- responded with one syllable: "Gold." He must have been within earshot back at the bistro. Moreover, he stated that "...risk assets are incredibly expensive..." So at least two of us have figured that out. Once the balance of world also figures that out we'll see Gold move well up the road.

To be sure much of our analytical approach in these missives is technical, i.e. the numbers don't lie, the market is never wrong, and 'tis what 'tis. 'Course we're keenly aware of Gold's massive fundamental undervaluation, underscored by a mere glance at the above opening Gold Scoreboard with price settling out the week yesterday (Friday) at 1325 versus our present valuation of 2862. Further, when technical conditions begin challenging -- if not outright exceeding -- historical trends, we know that something fundamental is afoot. And we need only next glance at the graphic of Gold's weekly bars to see that.

If you've been keeping score of late with us, you counters out there of blue dots know that the millennium's record duration of 26 consecutive ascending weeks has not been eclipsed; but the present run of 23 rising blues dots is now good enough for a podium position, tying for third place in duration since 2001. And yes as we've previously pointed out, the percentage price gain within this stint has not been comparatively impressive, but having witnessed in too many recent years a reluctance to buy Gold, since this past September there now clearly is a reluctance to sell Gold.

Oh it could all come to an end this week or next, the price to flip the parabolic trend from Long to Short now up to 1300 as displayed in the graphic. But then as to underlying technical support, Gold's got it, dare we say "tonnes" of it. Not that we want to revisit it, but there's Neverland, aka "The Whiny 1290s" followed by The Box (1280-1240). To have price plough down through all of that would be beyond bizarre. Still, upon the trend at some point flipping to Short, said duration would likely be short-lived given our seeing more eyes on the prize:

Meanwhile the Great Divergence continues between the stagnating Economic Barometer and the earnings/moneyflow-lacking S&P 500. Since the latter's 20% correction (from 2940 on 22 September to 2347 on 26 December), the stock market has recouped 72% of that drop, well above the venerable 63% "Golden Ratio" retracement distance. But we remain vigilant for the correction's eventually resuming lower such as to span the full 27% down to 2154, (a pre-Presidential Election resistance-turning-support point). Should instead the S&P move blindingly up and beyond that 2940 all-time high, then the pending percentage correction simply becomes greater.

As for the Econ Baro, 'twasn't the best of weeks. "Soft" data improved in the February readings for both the New York State Empire Index and University of Michigan Sentiment Survey. "Hard" data deteriorated as January's Capacity Utilization slowed and Industrial Production actually shrank as did December's Retail Sales. And lest we forget, the StateSide national debt just topped $22 trillion: scintillating alliteration, that. Thus don't you forget your hardhat:

In our characterizing the S&P as "earnings-lacking", we extend to a tip of the cap to Morgan Stanley's Mike Wilson who noted in a report that "...Our earnings recession call is playing out even faster than we expected..." At present, the "live" S&P price/earnings ratio we calculate is 29.2x, a tad shy of Bob Schiller's Cyclically Adjusted p/e of 30.4x, both measures a million miles away from so called "forward" ratios only in the high teens that would require earnings to increase by 50% if not double in a year's time. But when ya gotta market stocks to make a living: "C'mon, Ralph, we can get ya into S&P 500 component Alexion right now for just under 130 bucks a share..." (p/e 370.1x).

In our characterizing the S&P as "moneyflow-lacking", here from the website is the quarterly differential of the points change in the S&P versus that for its Moneyflow regressed into S&P points, the suggestion being the Index (per Friday's settle at 2775) is 192 points too high:

Not exactly flying high but staying firm -- certainly given the nearly record-setting duration of the weekly parabolic Long trend -- is Gold. And as next we turn to our two-panel chart of Gold's daily bars from three months ago-to-date on the left, we note the baby blue dots of linear regression trend consistency are rather dubiously wavering there, rather than sustaining. Still per the 10-day Market Profile on the right, price is at all but the highest level, guardedly supported by the 1318-1314 swath wherein trading volume has been the most dominant:

Sadly for Silver, she's stumbling to keep pace. Her "Baby Blues" (left) appear capitulative with her sole volume supporter (right) at 15.70 just 6¢ below Friday's 15.76 settle. And as you no doubt earlier picked up in the graphic of Gold's weekly bars, the Gold/Silver ratio remains well in the historically rarefied 80s at 84.1x. As the global economy slows, assuming it takes down with it the price of Copper, we look to Sister Silver to shed her industrial metal jacket in opting for her precious metal pinstripes:

All of which leads us toward the wrap with the Gold Stack:

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2862
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
The 1360s Double-Top: (1362 in Sep '17 and 1369 in Apr '18)
2019's High: 1331 (31 January)
10-Session directional range: up to 1326 (from 1305) = +21 points or +1.6%
Trading Resistance: none, per the profile
Gold Currently: 1325, (expected daily trading range ["EDTR"]: 11 points)
Trading Support: 1318 / 1314
10-Session “volume-weighted” average price magnet: 1315
The Weekly Parabolic Price to flip Short: 1300
Neverland: The Whiny 1290s
The Box: 1280-1240
2019's Low: 1275 (24 January)
The 300-Day Moving Average: 1274 and rising

In closing, one of our "dominoes" (remember those?) is back on the news front, faltering Deutsche Bank:

"You can probably slip in another one for the $22 trillion in debt, mmb..."

A fine recommendation there, Squire, thank you, albeit we've the Bond domino in there. By the way, we heard you made waves over at the World Government Summit in Dubai, in which the International Monetary Fund's Managing Director Christine Lagarde warned of a global "...economy that is growing more slowly than we had anticipated...".

"We had cocktails, mmb..."

The lad does get about, one has to say. A good time as well to get about getting some Gold, and some Silver!

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.

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.
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