The Gold Update by Mark Mead Baillie --- 162nd Edition --- 22 December 2012 (published each Saturday) --- www.deMeadville.com
“We’re on Buy Watch for Gold”
However: the first order of the day is to assess if there even is a day, given that the world may have come to its conclusion yesterday (Friday):
“Looks all clear to me, mmb.”
Indeed Squire, I’m inhaling oxygen and exhaling carbon dioxide, (sorry Al Gore), and a quick peek out of the window confirms, in the words of the great European football broadcaster Toby Charles, “Well, ‘tis all happening there!” So we’ve muddled through that Mayan bit and, it now being behind us, can press on with the usual modicum of dispatch.
We closed out last week’s missive with this sentence: “Barring an imminent resolution to our ‘Fiscal Cliff’, I’m anticipating a down week for the S&P and a positive one for Gold.” Oops. Were the products therein reversed, I’d be a hero rather than a zero. The S&P finished the week +17 points at 1430 and Gold -39 points at 1658. However in grading oneself, instead of an “F” I’ll accord myself a “D”, because expectantly upon Johnny “Bon-Bon” Boehner’s suddenly not being able to come up with the House votes on Thursday night -- resulting in this micro “flash crash” for the S&P futures…
…which had it occurred during regular stock market hours would have pummeled The Dow by 300 points in one minute, (oh yes) -- the Fiscal Cliff did not garner such “imminent resolution” after all. And thus the result we’d thought would dominate the week finally arrived on Friday as the S&P fell 14 points for the day whilst Gold rose 10 points.
Moreover, that overnight “flash crash” shows us just how fragile the S&P is right now, indeed how vulnerable ‘tis when not getting its way. Earlier in the week when the S&P was waltzing merrily higher and higher, I candidly wrote over at Time & Cycles verbatim as follows: “Nothing like a celebration of higher taxes, meager earnings and a declining Econ Baro. 'Tis a beautiful thAng. My ‘live’ p/e of the S&P just hit 45.0x. (Ex-AMZN 'tis 23.0x. That's ‘cause AMZN's p/e alone is 2,820.7x) The last time the p/e was this high was in April 2000, (from which the S&P then dropped 673 points). Dat's why I'm sittin' on da bid at 880.” Just in case you’re scoring at home.
Dead Wrong (Part Deux)
Being on a roll of repentance, I might as well also acknowledge the following: unless Gold rises 842 points on Monday, I’ll have missed (understatement), what now in hindsight I fortunately termed as ”improbable”, this notion written at the end of 2011: “As you know, my broad-term sense is for higher Gold levels (“Twenty-Five Hundred by Twenty-Five December Twenty Twelve”) and a lower stock market as noted.” Since penning that, Gold is just +91 points and the S&P +173 points. (We’ll put up our final quarterly view of “Extrapolating Gold Through 2012” in two weeks’ time as we’ve still five trading sessions to go in closing out the year).
All such mis-prognoses notwithstanding, from a hand-holding perspective during Gold’s corrective course through here, whether the selling be due to technical measures (perfectly normal), weak Longs bailing out (later with regret), the Fed piling on fresh Short positions in an effort to strengthen the Dollar (‘tis not working as we’ll herein see), as always, do not lose sight of this Big Picture:
That alpine cliff formation from New Hampshire’s White Mountains really puts it all into perspective, what? In the spirit of their great State Motto “Live Free Or Die”, you best hang onto your Gold -- and when it goes on sale like this -- buy more! For as you’ll see throughout the remainder of this week’s missive, Gold is working into position to turn back up. Which is why we’re on the Buy Watch for Gold.
First to briefly recap the week just past, here are Gold’s weekly bars and eighth red dot of the ongoing parabolic Short trend:
Again, failing to as yet resolve the issue of the Fiscal Cliff worked into Gold’s favour yesterday as it finished 22 points above the week’s low. And whilst a last-minute deal may well be in the cards following The Big O’s return next week from the First Family’s jingle-bell jaunt to the Islands, (at an estimated taxpayer expense of a cool $4mm), ‘twill at best be a facilitative fizzle followed by a consumer run on bungee cords, (aka “credit”), or more ideally, Gold.
Next let’s expand from the one year view above of Gold to a broader, two-year look, again with weekly bars. To be sure, the standard technical measures we regularly use, (at the foot of the chart), do indicate some negativity to which we’ve acquiesced in recent missives. But the key here is to look at price itself: of course we’d like to see it curling up rather than down, but in context across the entirety of the chart, ‘tis hardly out of sorts. Should Gold drop a bit more, I anticipate the area around that “support shelf” (horizontal Gold line) running from May through July of this year to hold, and in fact we’ve already bounced off of it this past week:
Want some more comfort? Let’s blow it out to an 11-year view with our chart of Gold vs. its 300-day moving average, which remains at 1673. But this time, as we do on occasion to quell the fears of nervous-nellies, here ‘tis on a logarithmic scale, (which for you WestPalmBeachers down there makes consistent the larger price movements of today with those smaller ones from a decade ago when the price of Gold was much lower):
In this very broad context, Gold appears essentially as having been flat for better than a year, even though the trading range since the All-Time high of 1923 on 06 September 2011 is precisely 400 points, (trading as low as 1523 on 29 December 2011). The discerning eye can see other broad “flat spots” through those 11 years, and given the certainty of ongoing monetary accommodation ‘round the globe going forward, Gold’s renewed upside bent is obviously in the offing.
What about the Dollar? We know, as an exception to the rule, that it can move in positive directional correlation with Gold. Moreover, ‘tis so doing to a degree right now, (even if there are purported Fed efforts to try to strengthen the Greenback by shorting Gold). Here are the month-over-month (21 trading days) percentage tracks of both the Dollar Index and Gold:
On a percentage change basis, the Dollar has not been as weak as Gold, yet still they’re both sub-zero over this time frame and directionally moving together.
But next, here is an even more important comparison: Gold vs. the S&P over these same 21 trading days. And as we’ve pointed out of late, the chart continues to present the opposite image of what we’d rather see. However if this negative correlation continues when these two markets both flip direction, well…
“All well and good, mmb, but again, you keep saying that gold is about to go up which means you’ll eventually be right, but when?”
Let’s put it this way, Squire. Remember the perception a couple of weeks back about taking a Short position in Sister Silver, (at a price of 32.880)? Silver closed out the week yesterday at 29.995, (for an “open” marked-to-market gain thus far of $14,425 per contract). A linear regression signal to close out that position is waiting in the wings once the consistency of Silver’s recent downtrend begins to weaken, (i.e. becomes “less down”). With direct respect to Gold’s similar pullback, what is happening now is that its own linear regression downside consistency, too, is poised to give us an aggressive buy signal. It hasn’t triggered as yet; however: such trend consistency as measured by our Baby Blues has moved below the -80% level…
…such that when those blue dots turn back above -80%, the Long side again becomes the right side for the Gold trader, (as if ‘tis not broadly the case anyway for the long-term investor). First however, should Gold consistently continue lower, we’ll see the Baby Blues appear to crawl across the bottom of the chart. But when the Buy trigger comes, the rewards by this measure generally are handsome. Indeed the last three Long signals produced by the Baby Blues achieved “open” position profits as high as 195 points, 146 points, and 70 points respectively all during 2012, even though Gold year-to-date as mentioned is up only 91 points.
So now that we all feel a bit better (I hope!) about Gold’s stance, its trading profile shown below, (the current 1658 level in red), suggests getting above 1668 opens the door for an additional 30-point run up to 1698, which in turn can get the momentum buyers all enthused as we head into next year:
Finally, if you’ve got ¥150,000,000 lying around and have yet to pick up that Christmas tree, a certain posh jewelry store in the Ginza district of Tokyo has this eight-foot gem on display:
The artist in the photo, (courtesy of Rex Features), is Shogo Kariyazaki who helped create the tree. Note: as ‘tis entirely made with 12 kilos of pure gold, shipping weight may be a concern, (not to mention the insurance).
A Blessed and Thoughtful Christmas to Everyone,