The Gold Update by Mark Mead Baillie --- 163rd Edition --- 29 December 2012 (published each Saturday) --- www.deMeadville.com
From “Buy Watch” to “Buy Signal”
But First: A Word of Thanks
In a week’s time, during which the analytics here look poised to produce a Buy signal for Gold, we’ll have entered 2013 thus marking the fifth calendar year and 164th consecutive Saturday writing of The Gold Update. However, I cannot let 2012 slip by without thanking (understatement) two Monumental Gold Information Sources for exponentially adding to my readership during the course of this year.
Both the brilliant Bob M. over at www.321gold.com and the fabulous Frank I. at www.kitco.com generously -- and at the risk of their empires’ entire reputations -- began regularly posting these many missives this past year at their truly prestigious websites alongside the greatest of Gold’s authors/analysts on the planet, thereby vastly expanding my own exposure to thousands of precious metals investors and traders ‘round the world. My heartfelt thanks goes out to you both. As noted on occasion, I try not to read too much of what is written about Gold such that my own studies of the charts and fundamentals don’t become biased by taking ideas from the stellar work of others. Therefore, to be included amongst them in the posting mix means more than you know.
Having said that, both of those websites ought be on the Gold follower’s mandatory daily reading list, as should that of the Great Gold Guru Jim Sinclair at www.jsmineset.com, indeed all three of those sites more now than ever, as the colossus of fiat and fiscal follies further transforms the world’s paper currencies into worthless junk.
My expression of acknowledgement and thanks with respect to the germination of these missives that began as an e-mail also goes to its single recipient (JGS!) back in 2009, evolving today into a distribution list that has increased manyfold with nary a cancellation request, as well as to the great analytical wizards over at www.timeandcycles.com wherein one can comb back through the archives and read practically every one of these weekly writings, (as if you had nothing better to do). Nevertheless, a sincere Big Thumbs Up to all of you Readers out there. And now: to Gold.
There remains but one trading day left in 2012, and as hinted to above, we’ll probably close out the year on Monday with a signal to buy Gold upon the open of CME Globex trading on Tuesday, 01 January at 15:00 Pacific Time, right in the midst of 1st quarter play from the Rose Bowl. I may well be jumping the gun here, but allow me to explain why we perceive getting this Buy signal in starting straightaway with The Baby Blues:
As a quick refresher, the above chart shows us Gold’s daily pricing over the last 21 trading days, (i.e. since one month ago). The diagonal line depicts the obvious linear regression downtrend of Gold’s price for that time period. The baby blue dots represent the consistency of that downtrend, their having dipped below the -80% level per the scale on the left. The Baby Blues being sub -80% and now “crawling across the floor” tells us two things: 1) the downtrend is indeed very consistent, and 2) should the dots begin to rise from the floor, as they just every so mildly appear to be doing, such consistency has begun to wane as price has already stopped declining.
What I'm anticipating, barring Gold getting clobbered on Monday, is that the next dot in the series, which will be the final one for 2012, shall have risen sufficiently from the floor to herald a Buy signal in commencing 2013. I would caution that this is not a trade for the weak-of-heart; ‘tis an “aggressive” Buy signal in being contra to Gold’s prevailing downtrend. Indeed to take the trade “conservatively” by placing a stop below the recent low of 1636 has a material probability of getting “stopped-out” for a loss. Rather, we’d look to add to this new Long trade in such adversity -- hence again its being termed as “aggressive” -- should Gold’s downtrend have sufficiently weakened per the Baby Blues rising off of the floor such that a new uptrend is expected, even if price dips a bit more. Thus this is a signal by which one ought be prepared -- and adequately funded -- to scale into with an expectation of adversity, as opposed to betting the ranch.
Such new Long signal for Gold, if triggered, is ~not~ for any particular Gold-related common stock, nor precious metals index, nor ETF (“exchange-traded fund”) with the possible exception of GLD which fairly mirrors the price of Gold, (divided approximately by 10). Instead, this is a signal specific to the price of Gold itself such that we expect to find it back above 1700 sometime in January. Whilst this trading signal is provided “without any responsibility on our part” -- and in duly noting that “past performance does not ensure future results” -- such signals over the past 12 months have averaged 60 points to the good within a month of their being triggered, and if then left “to run” until a counter-veiling Short signal is issued by the Baby Blues, have seen gains during the life of such signals in excess of 100 points in some cases. In fact, at the conclusion of the first trading day of 2012, Gold fired off a similar linear regression Buy signal that ran for as much as 145 points of profit before the month was out. In any event, that’s some historical data whereby, given Gold is currently at 1658, an increase per the typical average gain of 60 points as we go through January alone would obviously put the price back into the 1700’s, (should the Buy signal be triggered, which you can confirm by clicking here rather than wait for our next missive).
As for the quiet week just past, here’s the current stance of the parabolic Short trend…
…the latest red dot thereto now down to the 1755 level. Should the pending Buy signal from the Baby Blues come through with its usual degree of gusto, Gold’s ensuing up leg could well take out that parabolic level as it can only decline each week, in turn flipping this broader-based signal to Long and we’ll once again be sailing up into The Northern Front (1750-1800). To wit, a quick year-end peek into the War Room and Gold’s Battle Map via its daily bars since September 2011:
In coming off the All-Time High of 1923 (06 September 2011), we then see the Gold Troops’ three forays up across The Northern Front, therein hoovering the Forces of Resistance and indeed giving us the appearance of a so-called “triple-top”. And you know thereto the technician’s mantra: “Triple tops are meant to be broken”. Which in turn for Gold would make 2013 upside pristine, non?
“But hold it, mmb. As we head over the Fiscal Cliff, can’t that bring on a deflationary depression and Gold will get creamed?”
To be sure, Squire, a deflationary depression is Gold’s worst enemy if for no other reason than the global supply of money shrinks. I do not see that happening. Rather I can see money rotating out of excessively valued assets (i.e. the stock market) into those of more substance, (Gold and other tangible items of value). But that does not necessarily shrink the supply of money; it simply goes elsewhere. Indeed as we recess through 2013, (given that Joe “Six-Pack” Slobotnik’s take-home pay will arguably be about $2,000 lower than ‘twas in 2012), one ought expect the exact opposite to occur: more monetary accommodation to maintain some degree of economic status quo if not outright civility, (with a few extra bucks printed as well to pay interest on The Debt). And the more the money, the merrier for the metal as sovereigns and so forth calculatingly offset the decreasing real value of their currency reserves by increasing their holdings of Gold. A fairly automatic phenomenon, that.
Moreover, any 11th-hour fixing of the Fiscal Fiasco notwithstanding, Gold by our smooth pearly valuation line appears already overdue to go up. As measured by the oscillator at the foot of this next chart, Gold closed earlier this week better than 82 points below the valuation line, (itself calculated by Gold’s pricing relative to that in the BEGOS market complex comprised of the Bond/Euro/Gold/Oil/S&P):
Gold rarely wanders more than 100 points away from its valuation line, the current level of 1725 being well above the metal’s actual price of 1658, (hint hint, nudge nudge, elbow elbow). And the timing couldn’t be better, especially should the Baby Blues fire off a Buy signal, for as we turn the calendar to a new year, and notably the month of January, one sees that on balance, ‘tis a friendly month for Gold:
We’ve now 251 trading days in the books for 2012 and one still to run with a linear regression Baby Blues Buy signal waiting in the wings for New Year. All of that in mind, we go to the Gold Stack as follows:
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
The Final Frontier: 1800-1900
The Weekly Parabolic: 1755
The Northern Front: 1750-1800
Structural Resistance: (nothing stark)
Trading Resistance: 1698 / 1693 / 1668
The 300-day Moving Average: 1673
Gold Currently: 1658
Trading Support: 1656 / 1649 / 1643 / 1639
Structural Support: 1642 / 1577
The Floor: 1579-1466
Again, a Big Thank You to everyone who has helped put forth The Gold Update to the world. A Safe and Bountiful Golden New Year to Us All!