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The Gold Update by Mark Mead Baillie --- 444th Edition --- San Francisco --- 19 May 2018 (published each Saturday) --- www.deMeadville.com
"Gold - Déjà Vu All Over Again, Again"
Well there 'tis, clear as day, for it must be the month of May: as glaringly depicted above in "Gold by the Week", price has now not only printed a new low for the year, but has also returned sub-1300 into Neverland, (aka "The Whiny 1290s"), settling the week yesterday (Friday) at 1292 ... and teasing en route the top of The Box (1280-1260) at 1284.
Shall Gold never escape from here? Recall this bit we penned in May a year ago that "...in ten year's time, the voice from the radio shall say: 'The Dow has reached 30,000 for the first time ever, Fed accommodation pushing the money supply across the $100 trillion mark; Oil is still clinging to the 200 level, while London Gold is 1279 the ounce.'"? Sheesh. Were it not for Dollar debasement valuing the price of Gold today at 2787, we'd be concerned, albeit regression up to such mean is somewhat (understatement) overdue, eh?
To put where we are in context, allow this brief, nauseating review. Gold first reached 1290 some eight years ago on 21 September, 2010. Since then Gold's "lowest low" of 1045 came on 03 December 2015, swiftly followed by price's precisely hitting our projected 2016 high at Base Camp 1377 on 06 July of that year. From that low to that high and through today there've been 619 trading days: and a full 26% of them (161 days) have found Gold's settle between The Box and Neverland (i.e. 1260-1299), a span of just 39 points. Again glance above at the "Millennium-to-Date" chart of Gold's failing to track with the M2 money supply, (and please dispose of your barf bag outside the building).
Indeed as we look to Gold's rather miserable trading record in Mays past, we finally see 2018 having joined the downside parade:
"Dere it is" indeed as in turning to Gold's weekly bars we see the fresh parabolic Short trend kicking price down toward the purple bounds of The Box. Déjà vu all over again, again?
"Well, mmb, interest rates are on the move..."
Ah Squire, this caveat vis-à-vis conventional wisdom. We've already described in past missives Gold's having risen better than 60% whilst the FedFunds rate rose from 1% to 5% from 2004-2006. But a rise in the longer end of the curve does not preclude the price of Gold from also ascending. In the fallout of the Black Swan of 2008, the yield on the 10-yr. U.S. Note rose from 2.2% in December 2008 to 3.8% by March 2010, whilst Gold in the same stint rose 26%. Want something more recent? From a year ago-to-date Gold is 3% higher (en route being as much as 9% higher) and the 10-year Note yield has gone from 2.2% (again) to now stand at 3.1%. And the dirty little secret which has fallen off the page is the ever-increasing level of StateSide M2: 'tis within a few weeks of hitting $14 trillion. It reached $13 trillion at the end of August 2016 when Gold was 1324. Now with M2 better than 7% higher, ought Gold solely by such measure already be up in the 1400s rather than down in the 1200s? Our conservative high forecast for this year remains 1434 ... as does our call for the S&P 500 to correct by 25% to 2154.
Speaking of needing to correct, did anyone note per S&P/Experian's Consumer Credit data that bank card defaults have now risen for the fifth straight month? Variable-rate debt invariably brings pain. In fact, so-called "crypto world mover and shaker" (aka St. Louis Federal Reserve Bank President) James Bullard now thinks the Federal Open Market Committee ought not further raise their Bank's Funds Rate until at least 2021. Bravo Jimmy B.
Bravo is due, too, the Econ Baro, which whilst having been boffed about is nonetheless gaining a grip. To be sure, we saw April slowing in the growth of Housing Starts and Retail Sales ("Gotta pay dem taxes!"), but now that we're in May, both the New York State Empire Index and Philly Fed Index posted whopping gains. You can feel the chaos mounting, non?
And let's give a tip of the cap to the Dow Jones wires, which this past week characterized the stock market so far this year as one of "lots of volatility but no progress". Clearly Q1 Earnings Season saw 85% of reporting S&P 500 companies post better bottom lines than in Q1 a year ago, thank you Mr. Tax Cut. But with stock prices still at moronically-high stuck-on-stoopid levels, is it any wonder Bob Shiller's cyclically-adjusted price/earnings ratio is 32x, or that our "live" median p/e is 38x? For the true value investor, the 25% correction will be merely peanuts.
Meanwhile, we see Gold clinging to peanuts of support in the 1291-1288 band as shown below right in the 10-day Market Profile. More daunting, though, is the weakness portrayed by the "Baby Blues" below left as we look across Gold's daily bars from three months ago-to-date. Our sense -- especially given the aforeshown weekly parabolic trend as just newly Short -- is that Gold will test the support of The Box (1280-1260) -- and successfully hold therein for the year's low before the ascent to the 1400s:
As for poor ole Sister Silver, she still seems condemned to suffer eternally in the 16s, the too lofty Gold/Silver ratio of 78.5x be damned! Yes, she hasn't fallen in line with the recent decline of Gold, but hardly has she benefited on the upside whirl 'rounds:
Toward closing, given next week's drive toward our StateSide Memorial Day, the economic data calendar is light, its key highlight come Wednesday being the minutes from the 01/02 May FOMC meeting: recall 'twas was sans press conference, albeit all the members voted to maintain the 1.50%-1.75% FedFunds target range. But what did they actually say?
A few things that were said which caught our ear this past week included:
■ The International Energy Agency has cut its growth forecast for global oil demand this year; we thank goodness for that, having just paid over $4.00/gallon here in San Francisco to tank up our motorized conveyance. Ouch!
■ Mark Mobius -- who as we've mentioned is anticipating a 30% stock market correction -- is reportedly extending his emerging markets interests toward North Korea. Cue Yul Brynner to star in a film on this! (Let's first however see if they get that "Singapore Summit").
■ Italy's drive toward a "dual-party" in-charge government is bringing talk of debt forgiveness. Oh the European Union'll love that! Might this be the earliest stirrings of "PIIGS Parte Due"? You heard it here first, paisano! After all, from where comes the world's best salami?
Déjà vu, indeed! 'Tis why you want to hang onto your Gold!