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The Gold Update by Mark Mead Baillie --- 636th Edition --- Monte-Carlo --- 22 January 2022 (published each Saturday) --- www.deMeadville.com
"Gold Garners No Fear but Silver Gets into Gear"
Silver, baby! From its close of a week ago (22.99), the white metal has since traded as high as 24.76 -- that's +7.7% -- en route to settling yesterday (Friday) at 24.35 for a weekly gain of +5.9%.
'Twas Silver's best weekly net gain since that ending 03 May 2021, (at +6.2% the best week of last year). And as you regular readers know, Silver is long overdue to get off the schneid and higher glide.
Gold, maybe? Not really. From its close of a week ago (1817), the yellow metal could fare no better than reaching 1849 -- that's +1.7% -- in settling its week at 1836, +1.0%.
And yet, what have we got?
■ We've got the S&P 500 at long last, (or perhaps better stated from the trader's perspective at "short" last), en route to a correction of at least 10% -- toward what rightly ought be 50%-60% simply for price to get in line with earnings, (i.e. the lack thereof);
■ We've got President Biden ostensibly as the final arbiter between the mighty-mite Putin and the wee Zelensky;
■ We've got stagflation rearing its ugly head as herein detailed a week ago;
■ We've got the overnight lending rate charged by the Federal Reserve about to double, (yes they "ought" do it this Wednesday, but shall opt to wait another seven Wednesdays to 16 March, unless in the interim they implement a Volcker-like "massacre" per last week's missive);
■ We've got the liquid "M2" money supply of the U.S. on the threshold of eclipsing the $22 trillion level, (per next week's missive) for a +43% "Venezuelan-esque" increase in only two years; and...
■ We've got Gold garnering nary a bid of fear whatsoever.
Indeed, Gold has become the proverbial Monty Python flayrod having gone askew on the treadle. Gold has become oblivious to any and all influences fundamental; rather, its price is content to just lollygag along sideways as weeks, months and illogicity pass it by:
But Sister Silver is getting into gear by her weekly bars as we show here. And her rightmost encircled blue dot is a splendid sight to see, welcoming her fresh parabolic Long trend to an up spree:
And not to belabour but rather emphasize the point: we've Gold by our opening Scoreboard now valued at 4096 via accounting for currency debasement, even as fairly tempered for the increasing supply of Gold; and the Gold/Silver ratio's century-to-date average is 66.5x; thus arithmetically: 4096 ÷ 66.5 = 61.59 for Silver's valuation. That's 2.5x times above today's present level. Got Silver?
Or do ya still got stocks? No problem. Hardly are we anti-stocks: 'tis just hard to hold something for which one today can redeem double its value ... even as price now slips away. Besides, the time-honoured truthful tenet remains that the S&P 500 is not so much indicative of a "stock market" as 'tis a "market of stocks"; (you website readers know that by our Valuation and Rankings page); thus therein is value if you know where to find it.
However, here's the key point: year-to-date the market capitalization of the S&P 500 has been hoovered by some $3.24 trillion. That is a terrific amount of money now "sitting on the sidelines"; and its going to get bigger. But when "they" gut it up to reinvest: shall it go back into risk-full stocks? Or shall it go into risk-less debt? "What's it gonna be?"--[Paul Revere & The Raiders, '67]. Shiny objects? Or Savings accounts? As of yesterday's settles, the yield on the S&P 500 is 1.384% with full risk; the yield on the Bond is 2.064% with no risk, (barring Old Yeller's Treasury triggering a debt default). 'Course, the obvious bottom line is: 'tis better to hold something which is worth well more than double what 'tis priced: Got Gold?
Meanwhile in the midst of all this we're seeing the early signs of something wonderful: the Economic Barometer seemingly is returning to its role of directionally leading the S&P. As you long-time colleagues and readers know, such was the case for the Baro's first two decades. But upon it being determined a few years back that the stock market shall never again go down, the relationship ceased -- until these past few New Year weeks. Have a look:
Notwithstanding the rightmost Econ Baro plunge, we read that "...economists surveyed by The Wall Street Journal..." still see 2022's Gross Domestic Product registering growth of +3.3%. 'Course, since the economic fallout from Covid, this number has become meaninglessly volatile.
"How can you say that such an important number is meaningless, mmb?"
Simply by mathematics, Squire. When the standard deviation of the quarterly GDP results exceeds that of their average, that's meaningless. Or meaningfully put, all bets are off the table. Either way, next Thursday we'll get our first peek at Q4 GDP: they're "expecting" it to have been an annualized pace of +5.6% after being less than half that rate for Q3 at +2.6%. And to be fair in judging by the above Baro up to its recent peak, the Q4 number ought be fairly firm.
By the way, did you note January's New York State Empire Index went from December's +31.9 down to -0.7? "Have a great day!" Not to be ignored however, "Little New York's" Philly Fed Index improved: what a difference just 95 miles can make, eh?
Then there's China, a key difference being their Peoples' Bank cutting its lending rate as the Federal Reserve prepares to hike same. (Just in case you're rate shopping out there). "Howdy..."
Next we fix our eyes on the two-panel graphic featuring Gold's daily bars from three months ago-to-date on the left and 10-day Market Profile on the right. Whilst Gold's regression trend visibly is up, its scattered "Baby Blues" of consistency are anything but. Yet for the Profile, at least there's much more definition therein than we saw in last week's "hodgepodge":
As similar as appears the like graphic for Silver, her recent daily bars' (at left) climb is clearly more alacrative than that for Gold, per our opening. And by her Profile (at right), Silver's 23s are now key support, (but beware "The M Word" crowd...):
The ensuing week's Tuesday and Wednesday (25/26 January) bring together the fertile minds of the Federal Open Market Committee, the Policy Statements from which -- despite all the inter-meeting dissent -- are nonetheless time and again met with unanimity. Our stance remains they raise their Bank's Funds rate right now; their stance shall be to wait. But then seven weeks hence, perhaps they shan't have to ... that courtesy of the "Why Raise If Then We Rescind Dept." (wink wink, nudge nudge, elbow elbow). Mind the Econ Baro, the extent of the S&P's descent, and absolutely so your Gold and Silver!!