Gold Rebounds from The Box
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
As the culturally chaotic -- albeit not (yet?) financially frantic -- year races past, 41 trading weeks now complete, Gold just recorded its seventh best, rising 2.1% (27 points) in settling yesterday (Friday) at 1306.
Not that impressive, you say, given we oft quip that "change is an illusion whereas price is the truth"? Well truth be told, price this past week survived and nicely rebounded from a serious support test: that of the badgering 1280-1240 box which never seems to go away, akin to Mackenzie Phillips in the role of Carol from the '73 film classic "American Graffiti".
Thus we turn to Gold's weekly bars, having anticipated a week ago that "the infamous 1280-1240 box will hold, such that price shall then spring back up". In so doing our bidding, price also escaped the clutches of the ascending blue dots such as to keep the parabolic Long trend alive. Add to that Gold's widely-watched daily MACD (moving average convergence divergence) having confirmed a positive crossing on Thursday, our Market Rhythms data in turn giving price a 70% chance of stretching this run to at least 1332. 'Course, what we'd really like to see is reclamation of last year's high up at Base Camp 1377, and therein to dig in for the return to Gold's glory. That's out there; here's what's here:
Dollar softness helped Gold up the week's road, as did a bit of unveiled hesitancy amongst some members of the Federal Open Market Committee, their 19/20 September Minutes noting concern that tame inflation may be not simply a function of transitory developments. But then came a week-ending finale of firmer inflation data on both wholesale and retail readings, sending the Producer Price Index from +0.2% in August to +0.4 in September, and likewise for the Consumer Price Index from +0.4% to +0.5%, the latter being the second strongest month-over-month increase since the June 2013 reading.
Those higher inflation readings, along with marked improvements in Retail Sales -- their +1.6% leap the best since March 2010 -- and in the Univ. of Michigan's sentiment survey -- its 101.1 level the best since January 2004 -- all served to boost the Economic Barometer such as to fuel rationale for the FOMC folks to vote for nudging up their Reserve Bank's Funds rate come either the Halloween or mid-December gathering. And yet, none of that served to put the brakes on Gold into week's end. Here's the Baro along with the ever-crash-proof S&P 500 (red line):
Speaking of the S&P, remember when Groucho Marx would have his silly stuffed duck show the studio audience the "secret word"? Well, given that Q3 Earnings Season has just kicked off, the "secret word" is "estimates". And all we heard this past week -- and shall so hear over the ensuing weeks -- is XYZ likely having beaten "estimates". This of course leads to the endless parroting about earnings having "strength": that's another "secret word" that keeps FinNetwork ratings from falling. Again we remind you that during this past Q2 Earnings Season, of the 446 S&P 500 companies therein reporting, only 48% of them actually improved their year-over-year profit. But "improved" is not a "secret word". So as we on occasion caution, "A word to the wise is sufficient". And just for the record, our "live" price-earnings ratio for the S&P now sits at a record high 45.1x. Technically too, given 'tis understatement to now rightly cite the S&P as being wildly overbought, well...
"But mmb, we're all excited about getting lower tax rates!"
Squire, might I walk you back to the election evening of 08 November 2016 when the S&P futures rose 138 points (7% ... the equivalent of some 1,200 "Dow" points) in mere hours? That is when the expectation for reduced tax rates worked their way into the stock market. The additional 18% rise has since subsisted on nothing but fluff.
Further, to have a little fun with numbers, you may have noted during this past week that the odds-maker Goldman Sachs has put a 65% chance on StateSide tax reform getting passed by next year. Without having kept anything beyond casual mental records, we've noted that GS tends to be correct about its prognostications some 50% of the time. Thus recall from your B-school statistics course that .65 x .50 = 0.325 ... one might thus tongue-in-cheek opine that such tax reform has only a 33% chance of passing. Is that is in the stock market? Oops.
Here's something in which to be "in": the precious metals. And as the following two-panel graphic of daily bars across the last three months-to-date shows, both Gold on the left and Silver on the right are nicely swinging in sync with their baby blue dots of 21-day linear regression trend consistency. Moreover, note that the "Baby Blues" presently have yet to rise even up to their 0% center axis lines, such that should full swings up through +80% ensue, we'll be looking at still higher prices ahead:
Next in drilling down near-term via the support areas suggested by the 10-day Market Profiles, we've for Gold (left) the dual apices at 1295/1292, the similar zone for Silver (right) being 'round 17.20. C'mon Sister! Hold dem 17s!
As we turn toward the new week, amongst the substantive incoming data metrics for the Econ Baro comes on Thursday the change in Leading Indicators: the August reading was +0.4%, however the consensus for September is a halving to +0.2%, which makes some sense given the recent hurricanes, and -- until most recently -- the overall decline in the Baro. But a better number in line with the increases in inflation and Retail Sales ought further the case for the Fed to fuel the Funds rate. Mind your Gold, especially 'round that report.
Mind as well as to where you might choose to mine your Gold: in assessing some 64 municipal wastewater treatment plants across Switzerland, (wherein about 70% of the world's Gold is refined), estimable estimators of sewage sludge suggest there's some 100 pounds of the yellow metal ($2.1 million) mixed in with the malodorous muck, along with some 6,660 pounds of Silver ($1.8 million). That works out to a combined $3.9 million of piuy, gooey precious booty in those Swiss pipes. To be sure, 'tis a stretch to fetch, but when it comes to real money, Gold and Silver are always worth it, honey!