Gold's First Up Week in the Last Seven; S&P Surpasses Heaven
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Our subject is Gold, but briefly let's start with stocks as they're breaking the mold.
The S&P 500 marginally broke its all-time closing high yesterday (Friday) in settling at 2874.69: that is 1.82 points higher than the previous such high of 2872.87 set back on 26 January of this year.
"From which, mmb, you'd said there'd be a 25% correction down to 2154..."
Correctly stated, Squire, 'cept that it never happened: swiftly thereafter, the lowest the S&P lurched on a closing basis was -10.2% to 2581.00 on 08 February; a second swoon found it similarly -10.1% at 2581.88 on 02 April, from which it has gradually stair-stepped higher on less tax-ridden earnings.
But the issue nevertheless remains the same: honestly calculate the price/earnings ratio of the S&P 500 by dividing into each constituent's present price its actual "trailing 12-months" earnings, (conservatively assigning stock prices as the p/e for those 44 companies that don't have any earnings), multiply each result by the stock's cap-weighting for the Index and add 'em all up: your p/e per Friday's close is (...drum roll...) 50.7x. See you at 2154, the S&P's 2016 U.S. election "morning after" level.
One speculates that even the President feels fear of falling prices by putting forth that the Federal Open Market Committee is getting a bit carried away in raising their Bank's funds rate. To be sure, the earningless threat of it all being given back is quite real.
But should the S&P climb higher still, the resulting correction's percentage simply becomes larger. So from the "A Picture's Worth A Thousand Words Dept.", if you've non-Gold equities exposure, this snapshot of the S&P 500 from 1970-to-date ought scare the Jabberwocky outta ya ... "Go ask Alice":
Keep in mind that the overnight "lock limit down" for the S&P futures is -5%: which for you goo-goo-eyed "Dow" watchers scoring at home is an opening down tick of more than 1,200 points. Sleep tight.
Awaking from its sliding sleep over far too many weeks is Gold, having just sported its first up week in the last seven, indeed an up week of double-digit proportion (+21 points) for the first time since that ending 13 April, and moreover (this is hard to imagine) the yellow metal's third best weekly points gain thus far this year. Better still as we turn to Gold's weekly bars, with price having settled out the week at 1212, a mere up move in the ensuing week of 10 points would penetrate the "flip to Long" red dot at 1221. 'Tis a (albeit wildly overdue) beautiful thAng, should it will out ... so go make it happen:
And who says the BEGOS Markets can't be all in positive correlation to one another? They are now. With the Dollar Index having fallen a wee skosh (-1.6%) from 15 August, you can below see all five of our markets having since been on the rise. Might the FOMC folks be feeling a little force to back off bit? Powell did utter the "gradual" word at the foot of the Tetons on Friday. Still, there's nearly five weeks to run into the next powwow at the Eccles Building in DC; time enough for Gold to gain further grippity:
Lack of grip is the perennial pique over which Formula One drivers fret. We next see it here as well in the Economic Barometer. 'Twas a fairly sparse week of incoming data for which July's readings on New and Existing Home Sales fell short of both estimates and June's levels, whilst Durable Orders went backwards. Obviously the equities trading community dares not peek at the Baro, let alone set its trading algorithms loose on a bunch of meaningless fundamental data, be it economic or earnings-related. Here it all is, (and have a great day):
Turning to the precious metals' daily bars for the last three months-to-date, note that the "Baby Blues" of linear regression trend consistency are struggling to get off the mat. Further, look how Gold on the left is moving up more firmly than is Silver on the right. From Gold's intra-day low per the bottom there at 1167, 'tis 3.9% higher today at 1212. But from Sister Silver's low at 14.32, today at 14.79 she is only 3.3% higher. Tiny percentage increases in the big scheme of things, but Silver's lagging again places the Gold/Silver ratio at an extremely high 82x. Indeed consider this: Gold has to more than double to reach our Scoreboard level of 2826 (and higher given "overshoot"). Apply the millennium-to-date Gold/Silver ratio average of 63.4x to Gold at 2826 and it puts Silver at 44: a 300% increase (and higher if via mining stocks leverage). 'Course, that's the "then"; here's the "now":
As for the 10-day Market Profiles, they appear more price-supportive than they have in weeks. For Gold (below left) the thicket from 1202-1195 ought provide trading support. For Silver (below right) her centerpiece supporter sits at 14.75:
We started with stocks: let's close with 'em. To wit, the most laughable headline of the week (confirming what a cocoon in which much of the millennial-based FinMedia live). Ready? Cue the Dow Jones Newswires:
---> "The Dow is on the verge of busting out of correction phase for the 1st time in 6 months"
Correction? Correction?? (Recall Indianapolis Colts head coach Jim Mora from his 25 November 2001 press conference: "Playoffs? Playoffs? You kidding me?") I.e.: what correction? You saw the S&P 500 chart above, after which "The Dow" is similarly patterned. A 10% pullback from such inflated levels isn't even "noise". This bunch doesn't know what a "correction" is, let alone how it feels. But they will. In the interim, just hang onto your Gold!