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The Gold Update by Mark Mead Baillie --- 341st Edition --- San Francisco --- 28 May 2016 (published each Saturday) --- www.deMeadville.com
"Gold On Strike, Econ Spike, Fed To Hike (?)"
As oft occurs in the South of France, Gold has taken on a bit of springtime French fever, i.e., 'tis gone on strike. This time of year up and down the Riviera, from the tennis matches in Monte-Carlo and Nice, to the film festival in Cannes, to the Grand Prix in Monaco, nary a day goes by in the local gazette Nice-Matin where one doesn't read of this or that transport agency going out on strike, their cause garnering ample publicity as flustered folks attempt to get to this or that event, whilst just one-in-five scheduled trains is running.
Similarly, Gold's recent up run being unable to lastingly overcome the 1240-1280 resistance zone and The Whiny 1290s, again, also finds the yellow metal out on strike, seemingly unwilling to try and make another go of it. To be sure, as we saw a week ago, the parabolic measure on Gold's weekly bars flipped from Long to Short: thus some natural retrenchment of price is not only underway, but is technically in order. Gold's stellar year-to-date performance notwithstanding, this fourth successive down week did dig deep, price settling out yesterday (Friday) at 1212, off 3% over the five-day run. Here are the weekly bars:
Moreover, if we cast aside Gold's strident ascent during the year's first trimester and just focus on the -6% percentage change during May, clearly a strike is afoot, whilst the miracle market (S&P 500) lingeringly levitates:
'Course of late, things have suddenly become a whole lot better out there as measured by our Economic Barometer, so much so that if the Federal Open Market Committee members were really on their game, they'd hike their FedFunds target rate to 0.75% come 15 June. The Econ Baro's up-spike in just the last 17 trading days is the second steepest like period since September 2014, this past week alone recording material leaps in both New and Pending Home Sales, as well in orders for Durable Goods, plus an upward revision in the growth of Q1 Gross Domestic Product to 0.8% from 0.5%. So with the FOMC's credibility in recent time having been somewhat in decline, 'twouldn't surprise us a wit to see them take a more assertively hawkish "in your face" stance this next time 'round and pull the trigger ... a sorta "Ya don't mess with the Big F" kinda thing. All of this of course, at least momentarily, gives Gold the jitters. Either way, amidst the gathering hawks, here's the Baro, as usual with the carefree S&P:
And with broader-term respect to the stock market, (this from our "Scary Charts Dept.") here is the track of the S&P 500 over the last 25 years, right through yesterday's settle at 2099. View it in context that our "live" price/earnings ratio for the Index is presently 38.9x ... have a nice day:
So to this point, save for one trading day, we've five months in the books for 2016. We therefore turn to our year-to-date standings for the BEGOS Markets. And let's face it, if you've been on the moon, (or stuck on an inactive French rail line), only to have just returned and are seeing the following table for the first time this year, "How 'bout dem Precious Metals!" Quite the whirl 'round from recent years, even inclusive of this month's dismay:
But again as we zoom in on the performance by our BEGOS bunch for the past 21 trading days (one month), 'tis been somewhat gutting for Gold and Silver. The baby blue dots per panel represent the day-to-day consistency for each market's 21-day linear regression trend, its present inclination being the diagonal grey line across the daily bars. Here's the whole set:
Still, as we next go to the year-over-year percentage track of Gold alongside those of GDX (the prominent exchange-traded fund of the Gold miners), NEM (Newmont Mining), GG (Goldcorp), FNV (Franco-Nevada), and SIL (the popular exchange-traded fund of the Silver miners), this latest pullback may appear more digestible, and to some, an opportunity to add to one's pile:
Let's next segué from pile to profile. And with price now buried deep in the 10-Market Profiles for both Gold on the left and Silver on the right, the overhead apices of trading resistance show as both stark and numerous. For Gold to resolve its strike, get back to work and recover the mid-section of its profile (1250-1258) would at least put price back up into a re-challenge of the 1240-1280 resistance zone. For Sister Silver, some solace is seen as her present 16.30 level is the most heavily traded price over the past two-week period, with opportunistic-thinking buyers hitting sellers' offers:
So given we've essentially another trading month in the books, 'tis time to update Gold's monthly bars within the defined layers of our structure chart. Therein, the little fellow still remains quite giddy about it all, but as months further unfold, we anticipate he'll eventually burn out:
Finally, we've these several observations:
■ There are but a mere 12 trading days to the 15 June FOMC policy statement. When they raised their FedFunds target to 0.50% back on 16 December, given the then declining Econ Baro -- which worsened further still post-hike -- we went on watch for a rescission back to 0.25%. But as above noted with the Baro spiking higher of late, indeed comprehensively on substantive data rather than on payroll "creation", we're instead rather poised for the next nudge to 0.75%. Yet between now and that mid-June statement come 34 additional Baro inputs. Thus the sustenance of the spike, or lack thereof, shall tell the FedTale.
■ The BEGOS Markets at large have presently a rather precarious foundation. As an example, our measure for the amount of money it takes to move the S&P one full point ($209,638) is half what it was less than three months ago in early March ($427,775) when the Index was only 5% lower than 'tis today. These are therefore thin trading conditions in what we regard as the most important stock Index on the planet; (yes, yes, the "index at which our parents look", aka "The Dow" just celebrated its 120th anniversary ... whoopie-doo ... there's a reason why the futures contract volume on the S&P outweighs that for the Dow by 12 times). Point one is: the thinner the market becomes, the faster it can abruptly move, which can nicely accomodate an El Plungo. Also for those of you who follow the Market Rhythm Targets noted in our daily Prescient Commentary, you know we've been nixing a fair number of Targets that have triggered of late. Point two is: tried, tested and true technical studies ain't followin' thru no more. Are you feeling an increase in tremors emanating from deep beneath the markets' surface? We are. To again quote our illustrious charter reader JGS, "Sumpthin's gonna happen..."
■ Royal Dutch Shell expects its job cutting to total 12,500 folks by year's end. StateSide, (save for San Francisco wherein we just tanked up for $3.49/gal), gas and oil are cheap. Meanwhile, Microsoft is to cut some 1,850 of its smartphone jobs over there in Oulu, Finland, in the process of writing down the Nokia venture. Everybody's got a smartphone. Indeed, we're a world awash in oil and phones. Time to invent the next big thing.
■ The daily oscillation of the EuroZone Yo-Yo continues. On Monday we learned that the Zone's economic activity slowed for this month. Come Tuesday, 'twas strong consumption and improved construction investment that rallied Germany's Q1 GDP, only to now have investor confidence drop for the first time since February, and moreover, Moody’s downgrade the credit rating of Deutsche Bank. But wait there's more, for on Wednesday came a report of strong German business morale boosting hopes for growth. At the end of the day, the yo-yo string is beginning to fray.
■ The People's Bank of China just fixed the Renminbi at a five-year low, one buck now getting you some 6.6 ¥uan and thus furthering the faux-fact of so-called "dollar strength". As you saw above in the market standings, said "strong dollar" is off 3.3% year-to-date. Why, China's currency is not even a component of the Dollar Index. Sorry Mr. Chairman.
'Course, when it comes to components, the worldly one to have wealth-wise is Gold. 'Tis time to call off the strike, rally the Gold Troops, and re-strike 1300!
Cheers and a thoughtful Memorial Day,