The Gold Update by Mark Mead Baillie --- 170th Edition --- 16 February 2013 (published each Saturday) --- www.deMeadville.com

“Goodbye George…Later Louis…”


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“Purple Alert! Purple Alert! This is ~not~ a test. We have an actual Emergency…

Georgie & Lou were sellers of GLD. To repeat: Georgie & Lou were sellers of GLD.

Again this is ~not~ a test. Please tune now to your local frequencies for further instructions. That is all…”
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In listening to Bloomy Radio during the wee hours of Friday morning, I heard that Messrs. Soros and Bacon had, in Q4, significantly vacated their holdings in the Gold-backed, (or so ‘tis said), exchange-traded fund GLD. Ah, the nervous-nellie notions of such “weak Longs”.

“But hold it right there, mmb. These are Big Guys yer talkin’ about here, no?”

No, Squire. At least not specifically to GLD, which according to SPDR’s own accounting has some 440,000,000 shares outstanding. Not to belabour that which we already know news-wise, (or otherwise), some quick web research suggests George purportedly had owned only about one-third of one percent of GLD, by which during Q4 he reduced his share to about one tenth of one percent, (some 600,000 shares). Meanwhile, Louis’ fund dumped the entirety of their 100,000 or-so-share holdings. {…yawn…}

Which leads me to conclude that one Mr. John Paulson (with his mere 21,800,000 shares) along with the rest of you GLD holders out there remain as the “strong Longs”. Bravo. Besides, in borrowing above from Squire’s using the expression “Big Guys”, those two aforementioned GLD escapees are certainly not Big Dummies and thus one ought not bet against them coming back, especially should they re-perceive value now that Gold is here in the low 1600s. Moreover, Q4 ended a month-and-a-half ago and thus stale is this news of Georgie and Lou.

So: two “Big Guys” sell what amounts in toto to about two-fifths of one percent of GLD, and ‘tis over: the race to the exits is underway and folks cannot get rid of their plummenting Gold fast enough. Heck, who needs the stuff anyway, right? To be sure, much excitement abounds over a miraculous return to strengthening economies and manufacturing in both China (yep) as well as StateSide (really?).

Not to be a party-pooper here, but I’ll tell what’s rivetingly going to be exciting: what is the source of this year’s $400,000,000,000 (at least!) going to be to pay 2013’s interest on The Debt? To put that number in perspective, $400bn is about what the government will spend every six weeks this year. At the Fed’s current rate of printing $85bn per month to sop up Treasuries, in order to capitalize that interest payment, (which for you WestPalmBeachers down there is like taking yet again another cash advance on your Discover Card so you can make the monthly payment on same), Big Ben & Co. need to increase that monthly fiat creation to just over $110bn… {dramatic pause} …barring the Treasury actually being able to auction their securities to some other party:

“Hey China! How about some more of our top-rated paper?”“BONG!”“Was that a yes?”

(Further, in fairness to the Treasury, I do not know what portion of that monthly $85bn in Fed Funny Money they already may be apportioning to interest on the debt: but $400bn for the year straight-lined is $33bn per month. That’s a lotta bn.)


And Then There’s This…
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Trying to target Euro-to-Yen, indeed having already “softly” pegged Swiss-to-Euro, or Sterling-to-Dollar-bisected-by-Yen, (if not first offset by a return of the French Franc), is a bit of a silly business. A contraction of currency range in one venue will only naturally bloat same in a different venue as markets run their usual course to find the optimal combination of value, however exotic it might be. That’s why we’ve computers to sort it all out: 3 parts Swiss to 2 parts Yen, with just a dash of Baht, and stir briskly. What’s most important for Gold is this: the more of the above that is blown by that guy’s currency bazooka out into the markets, the more ‘twill be naturally commanded to purchase an ounce of Gold.

And if news this past week is any indication about the sliding stance of the G7 or G20 or Gee Whiz economies, more fiat follies can only be forthcoming. To wit, these few “quick hits”: “The ‘Abe trade’ revives macro hedge funds”, “Japan remains mired in recession”, “Barclays cuts 3,700 jobs in restructuring”, “Sterling tumbled against the dollar Wednesday as the Bank of England cautioned more stimulus measures would be carried out if needed”, “Euro zone economy falls deeper than expected into recession”, “Fourth-quarter GDP figure worst in almost four years”, “Euro Slides to Three-Week Low as Recession Deepens”.

But then came the worst of the bunch: “Swiss Stocks Fall on Nestle Sales, Euro-Area Contraction”:

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I know, when Swiss chocolate runs afoul of a recession, we’ve had it, the whole sphere. Yes, things may be hard in Bern, Bernhard, but don’t feel too bad. Just look at what has come to the fore here StateSide:

Per its executive suite, Wal-Mart’s February monthly sales are a “total disaster,” the disappointing figures being blamed on payroll-tax increases (no kiddin’?) on top of already challenging economic conditions (no kiddin’!). And a tip of the cap to Gold guru James Sinclair for posting the “Econ Baro” at his acclaimed website earlier this week. We already pack some 50 indicators into the Econ Baro each month; now I’m considering adding Wal-Mart to the batch. And should the Consumer -- both here and abroad -- be teetering on the edge, ‘tis only time before Central Banks pledge more faux dough.


When Gold opened 2013 on New Year’s Day at 1676, we posted a Buy at the website, (which was subsequently rolled from the then prevailing February Contract into that for April). I would add a second unit to such position upon Sunday’s opening and will so post. (Without responsibility here, you remain your own Risk Manager). Now at 1610, Gold put in its worst percentage losing week since that ending 11 May of last year and it has not spent a weekend since the first one of last August below this level.

What we saw this past week was Gold’s fundamentally sound stance be conveniently blunted by continued negativity in the technicals, as further embellished by those two fearless fellows noted at the outset in leading the WLLB (“weak long lemming brigade”) over the cliff. Traitors, perhaps…

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…but for Traders, creators of value as well. Thank you boys. An additional unit of Gold please. For what we did witness yesterday cannot help one to at least query as to whether we saw a capitulative low. Here is Gold’s minute-by-minute track through Friday’s RTH (real-time hours) portion of the trading session, (Pacific Standard Time):

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Yes, truly capitulative lows shall appear more violent and with far more depth than that; but we’re not talking about stock market paper here. Gold is real money. And clearly with regard to the balance of the session, sub-1600 was just too low per the trading flow.

Don’t Blame the Buck
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For the last three months, both Gold and the Dollar Index have been in downtrends as the other fiat currencies via those erstwhile economic booms of which we just cited in Japan and Europe bolster the world’s wealth. Proof once again that Gold and the Dollar will put in their stints of directionally moving together whilst others of such ilk as the Yen and Euro go their soaring ways:

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And yet just in this past week, in the rightmost portion of the above chart, we see the Dollar truly gaining a bid in Gold’s gloom, temporary as it may be.


Facing (indeed “Fading”?) the Facts
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So just as we’ve be on the edge of our seats these many weeks in anticipation of Gold reversing its parabolic Short trend to Long, one can either “Face the Facts” and capitulate as have Georgie and Lou, or instead “Fade the Facts” and stay the Golden course, which in future hindsight (what a concept!) will rightly have been the correct option. But the numbers don’t lie and for the moment, these next two ever-popular charts have not exactly put on their happy faces.

First to the three-month view of Gold as it remains stumbling along below the smooth pearly valuation line, (borne by Gold’s movement relative to those in the markets that make up the complex we call BEGOS: Bond/Euro/Gold/Oil/S&P). Note that the value line itself is just below 1690, (and indeed that the parabolic flip price shown earlier is 1694), and that rarely -- and only then briefly -- does the distance of Gold’s actual price from the value line, (per the oscillator at the foot of the chart) historically ever reach the -100 level:

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Meanwhile, on the 21-day linear regression trend chart, the dots are bathing in the blues:

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Poor ole Baby Blues! But amongst all the angst, fix as foremost in your fervent mind the following: To capitulate and then turn complacent, (or worse to the stock market), means not being on board with the Gold Troops once their high-speed train jets out of the station: “That wasn’t the direct express to The Northern Front (1750-1800) was it? Oh RATS! I MISSED it!!” Don’t be that guy.


Here is Gold’s latest trading profile, the current 1610 level being the red bar. Target One: 1647-1649. Target Two: 1668-1676.

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In closing it out on this StateSide holiday weekend, ten’ll get ya twenty that the George on the left could learn something about staying the course from the George on the right… ya think?

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Happy Birthday Mr. President!


Cheers!


…m…
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