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Gold Begins the Month with the February Flop

Mark Mead Baillie
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The February Flop of course being analogous to the infamous Dick Fosbury Flop, which he brought to the ’68 Olympic Games at Mexico City in leaping across the high jump bar “backward”, if you will. Which is just how Gold opened this month’s competition: “backward”. To wit:

Yesterday being Friday, we began ruminating over what we’d be penning this Saturday morning for The Gold Update. And thus early Friday with Gold sleepily lolly-gagging about in the supportive mid-1260s, we considered leading this morning with offering that one ought have some Gold, and if so, to add to such fold, given the clustering of catalysts that fundamentally, technically, and common sensibly are fairly imminently leading to the stock market’s command performance of any or all of the Three Cs: Correction/Collapse/Crash. If one could precisely time a Three Cs event, before it all going wrong, Gold if not at least cash would be the preferable place for one’s wealth preservation. We were even futzing about with a title like “Gold ‘n Cash before the Crash; Ensure Protection of Your Stash”. Or something like that.

But then came the ever-amazing increase and upward revision in payrolls, defying even an up-tick in the rate of unemployment, in turn making it so obvious that the Federal Reserve Bank must raise rates, that Gold in response performed the February Flop, a four-hour, forty-point drop as if down an ice sheet. Not that we desire to put our concerns of the stock market’s Three Cs on hold, but ’tis necessary that we get on with Gold, especially in light of using the phrase “ahead of itself” five times in writing a week ago. So here we go.

The thrust of last week’s missive was that Gold generally finds love in February, but that price was well “ahead of itself” vis-à-vis our BEGOS valuation, (aka “The Now”). Of course, mathematically per the above scoreboard, Gold remains half of what it ought already be, (aka “The Inevitable”). But let us begin with the same three-year chart which we presented a week ago, now updated through yesterday’s close. Again, the smooth valuation line in the below graphic is a hybrid calculation of Gold’s price relative to the movements in the primary markets that comprise BEGOS (Bond / Euro / Gold / Oil / S&P). Also again, we’ve displayed the red boxes indicative of when price is better than 100 points above the smooth valuation line per the lower-panel oscillator (price less valuation) … such that you can then see what regularly occurs: a pullback. The point therefore is: this week’s pullback should not have been a surprise, regardless of the Labor Dept.’s parading about the incessant creation of part-time jobs as the catalyst for a Fed rate rise; rather, our concern was for the 1280-1240 support zone to contain price, (more on that when we go to the weekly bars). Initially again, here are the last three years-to-date of Gold’s closing price, its smooth valuation line, and the oscillator. Note the “ahead of itself” warnings as indicated by the red boxes:

“So it looks like more down to go, huh, mmb?”

Given the prior three red boxes there Squire, one ought think “yes”. However, what is different this time ’round is a beneath-the-surface burgeoning sea change to get back into Gold. Be it the investment banker or the astute private investor, we’ve directly heard from both leagues as having already acquired Gold in the new year. And who can blame theme? Why be caught holding the non-Gold equities bag when the chaotic stock market’s dyke suddenly sees its saving fingers being withdrawn? ‘Tis axiomatic in markets that chaos leads to loss of patience, ultimately inducing the “I’m outta here!” syndrome. Be sure not to blink.

Turning to Gold’s weekly bars, we below see that the parabolic Long trend is still intact, the rightmost array of blue dots continuing their ascent. Disturbing however, as noted earlier, is price itself having descended below the 1280-1240 support zone, which in TechSpeak, now makes it the 1240-1280 resistance zone. Recall last week’s descriptive graphic of Gold generally being loved in February? ‘Tis being put to the test this time, as Gold sings: “Don’t pull your love out on me baby…” –(Hamilton, Joe Frank & Reynolds, 1971):

Flirting is Gold as well with its 300-day moving average, a once tried-and-true supportive relationship that in the last few years has gone from sweet to sour. Still below, that rightmost peak of closing price (1302 on 22 Jan ’15) is the highest (+40 points) above the average since 10 Dec ’12, evidence of Gold’s employing a bit more upthrust, when so inclined, these days:

Regardless of recent upthrust having been met with yesterday’s bust, we’d like to highlight Silver in this next two-panel graphic of linear regression trend consistency over the last three months. For Gold on the left, the pattern of both price and dots remains wonderfully rhythmic, especially should Gold hit the brakes hard here, consolidate, and then resume higher. However for Sister Silver on the right, were she donning her industrial metal jacket, she’d being looking as chaotic as do the S&P, Copper and Oil. But no: rather she’s sporting her precious metal pinstripes, in patterns practically identical to Gold in both price and dots. Che bella ragazza!

‘Course, in duly turning below to the 10-day Market Profiles for both Gold (left) and Silver (right), ’tis a bit of a morphing from beauty to boorishness, both markets having created the significant trading resistance levels as labeled above yesterday’s respective lowly settle prices. Questo è brutto …

The good news for both Gold and Silver is that as the world goes ever-’round, ’tis with increasing financial wobble. To be sure, that ten Dollars/€uros less spent at the petrol pump allows for more consumption of burgers/saucissons at the local diners/bistros. But it remains to be seen how long such “opportunity savings” lasts, given Oil’s having climbed from its recent low in the 43s back up into the 54s this past week, aided and abetted with flattery from Abdulla al-Badri, the OPEC Secretary-General describing how price could reach the 200s, were energy investment to be found lacking. That’s a Gold positive.

Then there’s the continuation of deflation running rampant within the EuroZone, hampered as well by the impasses posed by Grecian debt. Longtime readers of The Gold Update might recall our titillating four-part installment series in the last few years entitled “Greek Bonds ‘R Us”: now ’tis playing out for real. Buy a Greek bond and bye-bye principal. The European Central Bank has apparently now figured that out. That’s a Gold positive.

And then, on the extremely off chance that you don’t take a moment each day to peek at our Economic Barometer, for us StateSiders, it really does tell all. That’s a Gold positive.

Indeed this past Thursday following the economic releases of increases in Challenger’s layoffs measure, jobless claims and the trade deficit, I took a moment to distribute the Econ Baro, (as you can see above still in full plunge even following yesterday’s payrolls and consumer credit data), to several dozen mates and colleagues. Amongst the myriad of empathetic responses came this from our valued friend and veteran reader Ken-O: “At a certain point [now!], economic reality will take over the markets and reflect its true situation. Unfortunately, many are not aware of nor able to prepare for this inevitable financial event. Daily life has overwhelmed them and all of this, they believe, is beyond their pay grade and that the $tate will protect them. Sad.” Spot on, Sir.

Moreover, in closing it out here, we give a tip of the cap to the FinTimes, which albeit some years late to the party, did run with this bit of self-enlightenment during the week: “Debt mountains spark fears of new crisis … Failure to cut borrowing has left capital markets vulnerable.” Welcome to real life.

Let’s see if Gold and Silver can deeply dig in their heels this week and at least consolidate. Meanwhile, stay mindful of the stock market chaos (understatement!)



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