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The Gold Update by Mark Mead Baillie --- 318th Edition --- San Francisco --- 19 December 2015 (published each Saturday) --- www.deMeadville.com
"Gold Still Dead Post-Fed"
Whilst preparing to "leave the building" as is our wont on FedDays, several hours prior to Wednesday's dastardly deed performed by the FOMC, I enjoyed a brief exchange of emails with a valued colleague up in Montréal, who bemoaned the notion of having to remain put so as to endure the then still pending Policy Statement and following FedSpeak wherein "Orson Wells would be proud of the double talk." Straightway, we couldn't resist this:
Rather chilling, what? Raise, Wreck, Rescind. So it thus far seems, the S&P 500 having lost better than 3.4% of its value in just these past two days, with Gold still dead post-Fed in closing out the week yesterday (Friday) at 1066. The anticipated FedHike of their target rate from 0.25% to 0.50% now in stone -- theoretically until the 27 January Policy Statement, given the FOMC can move at will -- we nonetheless noted that even Old Yeller's predecessor Big Ben, (in spite of his optimism for the economy), has suggested that the Fed ought consider going to negative rates in the next serious economic demise "if the situation arises". Quite the "if" that. Let's start with the Economic Barometer:
Now, contrary to what conventional wisdom might think, following reversals of Federal Reserve rates from lower to higher, the stock market has actually been prone to rallying, because 'tis said by the Fed that the economy is improving. The last occurrence from downshift to upshift in the Fed's gearbox was on 30 June 2004 under the then waning reign of Alan "Greenbacks" Greenspan, after which the S&P rose some 38% over the ensuing three years, and during which rate-rising stint the price of Gold doubled from 400 to 800, (despite our being told such phenomenon can't happen when interest costs climb). Fast forward to today and not only this time 'round does Gold remains dead, but further, the equities euphoria lasted but one day.
"Oh come on, mmb, it is way too soon to say that..."
Is it, Squire? The S&P's price/earnings ratio come the 2004 FedHike was 26x. But the times, (thank you Bob Dylan), they have a-changed: today 'tis 45x, (our "live" reading even after this two-day pullback). Moreover, some of you music heads may recall the popular John Mayall harmonica blues piece from back in '69 "Room To Move"-- 'tis what earnings provide for stocks to so do. But in lacking real earnings growth these recent years, even with this "initial" FedHike, there's no room to move up. To quote the ever-deliberate Dennis Gartman from this past week: "Get out of stocks." No kiddin'.
Another foreboding sign of market trouble is being elucidated of late in various of our Market Rhythm Targets failing. Those of you who swerve by the website may be familiar with such daily Rhythm postings, and have perhaps read in the recent Prescient Commentaries about prices not following through to their technically-generated Targets, generally which are met at least 70% of the time. But of late we've had to nix better than 50% of them upon the underlying technicals prematurely reversing their signals, which in turn can be quite damaging one's trading account. This lack of follow-through becomes an alarm to traders -- both human and algorithmic -- which compounds uncertainty, ultimately leading to the "cash is king" thing as markets materially suffer in the balance. And despite its having been forgotten as such, 'tis good to know that Gold, too, throughout its multi-millennia history is cash.
In any event as we'd anticipated, we were wrong about the FOMC having voted -- indeed unanimously so -- to nick the FedFunds rate up a pip. But as we'll later pat ourselves on back upon such FedHike rescinding into a FedYike, so shall we do same upon Gold crossing above 2000; 'tis merely a matter of time, for were it not inevitable, we wouldn't be writing. Such sentiment said, Gold is still dead post-Fed as evidenced by the weekly bars and parabolic red-dotted Short trend that we below see. Indeed, Gold has recorded but one up week in the last nine, the only other time this having occurred millennium-to-date being in back-to-back accountings during 2010 for the weeks ending 29 January and 05 February:
'Course, having written ad nausea these last few years on Gold's being oversold by any myriad of measures from valuation by debasement to valuation relative to other major markets, here yet again is another stunning comparative visual. A regular feature of The Gold Update is our graphic depicting the 21-day (one month) percentage tracks of Gold vs. the S&P. For this edition, we've expanded the period to two months (42 trading days) and added the Dollar Index to the mix. Never has a picture expressed a thousand words as poignantly as this one:
No, thy eyes do not thee deceive: from two months ago-to-date, Fed-driven or otherwise, the Dollar Index is not quite +4%, the S&P is off less than -1% ... and Gold's off by more than -8%? Really? "C'mon, Man!!!" To say there is "so far to soar" is utterly understatement.
With respect to Federal Reserve Bank Chair Janet Yellen -- her press conference being couched as confident and clear that the path of rates will be well signaled -- she must with her FOMC members now manage their monetary machinations as markets materially matriculate murk and mess such as to have lost all confidence of anything signaled. Which for you WestPalmBeachers down there means that things are, (to use a technical expression), about to get "hairy". (In fact, from our "Public Service Announcements Dept.", we suggest that you not use too sharp an instrument in slitting open the envelopes containing those ensuing, even more-nagging, credit statements).
To price specifics: the following three dual-panel graphics are respectively of Gold, Silver and the S&P 500 ("Spoo" futures). In each case, on the left we've the last three months of daily bars along with their "Baby Blues" indicative of 21-day linear regression trend consistency, whilst on the right are the 10-day Market Profiles indicative of which prices are contract volume-dominant, the white bars being yesterday's settles.
We start with Gold, whose "Baby Blues" have abruptly run out of puff, (apropos of this missive's title that Gold is dead), albeit for the umpteenth time in the last three years, one might opine that price is basing; note as well in the Market Profile that present price is dead-centered:
As for poor ole Sister Silver, her depictions are somewhat similar to those for Gold. The volatility in her bars of the last three days again puts us in mind of the gal with the dirty blonde hair and taupe miniskirt, standing with her overnight case in the Greyhound bus station, as accorded in that Chris Isaac tune from back in '95: "Going Nowhere":
Then there's the once risk-capital venue -- turned "Great American Savings Account" -- known as the stock market. Recall those whiny, wayward folks from 2001 and 2008 who didn't realize that stocks could actually go down? "They're baaack...":
And lest we forget, there are also the money managers of the wayward folk, and many others like them. This past week, one strategist, (whose name we choose to withhold), made a rather elaborate Fed-explanatory quote, including that "U.S. equities feel oversold at current levels." Son, you don't know what "oversold" is.
With but seven and one-half trading sessions left in 2015, (and not to worry, we'll be chiming in both on Boxing Day and 02 January), there are still some 14 incoming Econ Data items to pour into the Econ Baro. 'Twill be updated daily at the website.
As for Gold, we trust that our report of its still being dead is greatly exaggerated. Take to heart one of the most Gold-loving countries on Earth: India. For if reincarnation works for our friends there, then surely Gold, too, shall benefit!
A peaceful Christmas to one and all 'round the world.