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Gold: What’s The Score, Baby?”

Mark Mead Baillie
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Welcome to our Fifth Anniversary Edition of The Gold Update: 260 of these weekly writings are now in the can, as is by our valuation, the price of Gold. When it comes to the beat-down of Gold during these last two years, we say “Enough is Enough!” Therefore, in order to shake up the joint a bit, dare I say, “knock a few heads together”, we’ve decided to ramp up our part in championing rightly higher Gold prices with the above “in your face” new opening staple to these updates for the foreseeable future. And as we look at the scoreboard, with $1,179/oz. as the present Price, ’tis trailing Value — $2,457/oz. — by $1,278/oz. In fact, if you check in your Gold Press Guide, $1,179/oz. was the low for 2013.

Our sense is that if there is one money manager poised on the edge of the chair to materially delve back into Gold for one’s clients, then there are thousands of like-minded money managers. Problematic is that they’re all looking at one another to see who leaps first, for no one really knows “how low may become low”. As an esteemed member of our Investors Roundtable exclaimed last Sunday, “Hell, it could go to 600!” That’s were ’twas back in 1980, which if price was further diluted to account for the increased supply in Gold’s tonnage over these last 34 years, essentially halves that level to 300.

Fortunately, we’ve not lost our common sense. Given that Gold unequivocally has been money forever, indeed that it has provably increased in value in its role as the de facto offset to accelerating foundationless currency supplies, let’s commence with the following two charts. They both cover the last 34 years-to-date of weekly data for these three elements: 1) the change in the supply of the Federal Reserve Bank’s M2 money supply, 2) the price of what we now refer to as “Gold D&D” — its valuation Diluted for its increase in tonnage supply as adjusted for the Debasing of the Dollar by the increase in M2 — and 3) the price of Gold itself.

The first chart (Price Level) puts M2 on the left-hand axis vs. both “Gold D&D” and Gold itself on the right-hand axis. Thus as displayed in our opening scoreboard, even diluting the price of Gold to account for its increased tonnage supply over these better than three decades, as offset by the level of M2, price today “ought” be $2,457/oz.:

The second chart below (Percentage Change) tracks the same three elements, but all on the same scale. Even given Gold’s supply increase, such diluted percentage change when including accounting for the debasing of the money supply is only half of that of M2’s percentage change, making all the more absolute the fact that Gold today “ought” be double what presently ’tis:

I know, ’tis all too logical, even as supported by mathematical science, (aka “Truth”). But because at the end of the day, Gold’s actual price is demand driven, for which there is a complete dearth, ’tis therefore apathetically — and thus pathetically — priced at about half its value. And yet, when the great game of Money Manager Chicken suddenly stops and they all start piling back into Gold funds, Gold stocks, Gold derivatives and Gold bars/ingots/coins, Gold shall, per our favourite of market technical analysis expressions, go Upside Gonzo Nuts (“UGN”).

And maybe, just maybe, ’twill be our Swiss friends that get Gold a-rallyin’. For as you studied readers are likely aware, the Swiss in taking to the polls on 30 November have a ballot measure, which if victorious, would charge Die Schweizerische Nationalbank with maintaining at least 20% of its assets in Gold, moreover that Die Bank be forbidden to sell any Gold, and further that Die Bank repatriate any Gold that its owns outside of God’s Country. We have to think that passage of this measure surely would be a global reminder toward again valuing Gold as real money, in turn launching it back into First Place in our BEGOS Markets Standings, which year-to-date are as follows and really reflect the short-sighted yearn for Dollar-based paper assets, rather than for Gold:

And speaking of Switzerland, I heard their Marc Faber (via Bloomy) this past week referring to “foolish analysts” pointing to economic strength when the reality is that Oil’s plummeting — as you can see in the above standings ’tis in last place — is telling us anything but. Then couple that with the Bond leading the BEGOS bunch — but the S&P’s just having closed yesterday (Friday) for the 38th time this year at an all-time high — and you don’t think we’re on absolute “crash watch”? Oh yes.

As for the consumer, whose spending drives the lion’s share of the economy, a retail analyst noted this week that holiday budgets are tight and that they’ll be spent earlier in the shopping season rather than later. Indeed, ’twas reported yesterday that Consumer Credit rose in September for the 26th consecutive month — and the Fed’s mulling over raising rates next year? Woe to those in variable debt throes.

As for the Stateside Baro, ’tis essentially noodling about sideways as the S&P seemingly ignores it…

…whilst across the pond the European Commission cut its growth forecasts for the EuroZone, with added anxiety from the German economy teetering on tipping into recession and the European Central Bank ready to increase stimulus; the Bank of England, too, sees the UK’s economic recovery as ebbing; a week ago we discussed Japan’s rising sun as sinking; and now we’ve China’s factory output slowing. So, this being a landmark edition for The Gold Update, we again justifiably quote the sole recipient of the very first missive five years ago, JGS: “Sumpthin’s gonna happen…” Exactly right, my friend. And I sense the ever-illusive When is streaking toward us.

As for Gold, which after leading the BEGOS standings through the first two quarters of 2014 has now dropped into third place to be -2.2% year-to-date, it put on quite the resilient display yesterday in making back four days of flailing below last year’s low, (as we’ll later see into newly treacherous territory for our Gold Structure chart). But specific below to this next graphic, although the week’s overall change was immaterially higher, yesterday alone was Gold’s strongest up day since 19 June, rising better than 3% or 37 points. And given the week’s contract volume was the heaviest since that ending 19 April 2013, we may well look back on this as Gold’s capitulative low. After all, you may recall, last week’s missive was entitled: “Gold Is Now WAY Oversold”:

“Well, mmb, you did show us how far away gold got from that magnet thing. Happy 5th by the way…”

Thank you, Squire, ’tis grand to have you aboard in this anniversary edition. And yes, Gold was attracted back to its Market Magnet in full yesterday, as we see below in the left-hand panel’s three month chart. Also below in the right-hand panel’s one year chart of Gold’s “expected daily trading range”, we finally see Gold getting into the seasonal spirit of volatility, the box indicating 20 points expected between the daily high and low prices, and thus quite the Golden playing field for you traders out there:

Next, we’ve another double-barrel Gold Display. Below on the left are Gold’s daily bars for the last three months-to-date with the “Baby Blues” dropping like a stone; but should yesterday’s “power bar” mark a capitulative low, the Blues shall soon turn up in tow. Below on the right is the 10-day Market Profile for Gold, the current 1179 price essentially centered between two major trading resistors above at 1204 and 1229, and two major trading supporters beneath at 1168 and 1144:

And now for the grand finale. When we last posted the Gold Structure graphic, (20 September edition), ’twas noted as follows: “…we don’t wish to have to create a further sub-structure for the chart in orangy-red defined as Gold having gone to ‘you-know-where’…” To so do would require Gold busting its low for 2013 of 1179, which it did one week ago. And thus as we turn to the updated Gold Structure of price’s weekly bars since the All-Time High of 1923 on 06 September 2011, we’ve dutifully added the devilish layer:

In closing, we can’t wrap up this anniversary edition without a mention for poor ole Sister Silver, who as you saw above in the BEGOS Market Standings has been absolutely clobbered this year, (-18.6% vs. just -2.2% for Gold). In fact, you may recall from a week ago that she’d been seen hocking her precious metal pinstripes at the local pawnbroker, just to get lunch money. Well, cheer up Sis, per this “above the fold” headline that ran in the FinMedia on Thursday: “American Eagle Silver Coins Sold Out as Demand Jumps … The U.S. Mint ran out of American Eagle silver coins after selling 1.26 million ounces since the start of the month as futures in New York slumped to the lowest in more than four years.” You’ve got a lot of smart folks routin’ for ya, Baby! Clearly by our reckonin’, ’tis time for you to join Gold in putting some more points up on the scoreboard!

Cheers and Thanks to You ~The Readers~ for your Interest these Five Years! Onwards and UPWARDS!

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