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The Gold Update

Monday September 24, 2012 09:20

Ducks and Cats and Rabbits…Oh My!

When running amok are one’s ducks, the challenge of getting them back in-a-row is a function of their number. (I suppose such challenge is second only to herding cats, wherein just getting one into line is an amazing feat, let alone two).

To that end, Gold seems to be the only market comporting itself properly out there. As has herein been anticipated these many weeks, Gold first made that eventual break upward through the declining parabolics confirming such trend change from Short (i.e. down), to Long (i.e. up); then the Gold Troops boarded what turned out to be the high-speed TGV and zoomed up the rail line to The Northern Front (1750-1800); and finally as we've most recently expected, the Troops now find themselves dug in here at 1775, combating the Forces of Resistance, and indeed weakening them. Gold is doing its part to command, per ounce, more currency units, which by their own accord are multiplying like rabbits. ‘Tis happening in Asia, the US and Europe. ‘Twill in time drive Gold across The Final Frontier (1800-1900) to The Gateway to 2000 (1900+).

Problematic to this is the ongoing positive correlation of Gold with the S&P 500 as we see here…

…such that if the latter tanks, so too yet again from The Northern Front could Gold be repelled, finding itself in the upper 1600s, (from which I sense the final push up through the 1800s would then ensue. For the more pounded upon are the Forces of Resistance, the further feeble they become. However if instead we’re on the verge of that continuously-anticipated move in Gold up and away from an S&P that begins to decline, then the 1600s already are a mere memory).

Right now I am very sensitive to an across-the-board decline in market levels, somewhat akin to the Black Swan Event of 2008. The ~magnitude~ may not be as large as ‘twas then, but the direction of the BEGOS components (Bond/Euro/Gold/Oil/S&P) would be down. If you’ve forgotten what that looked like, let’s go back to 2008 and indeed to right about this same time of year:

“But mmb, Big Ben’s boys alone are cranking out - as you put it - almost a half-trillion dollars a year now to flood our banks with loanable money towards spurring economic activity to reduce unemployment. The stock market loves it!”

And, Squire, as we herein queried a week ago: what if it doesn’t work? Bank of America certainly isn’t waiting around: to counter declining revenue, they’re letting out 16,000 folks over the next three months. Merry Christmas.

Meanwhile in Asia, China’s factory output is slowing, Japan’s trade figures are wilting, and now these two are having a strategic spat over some wee islands. Sparks Fly.

As for our friends Across the Pond, business activity is now ailing to the point that the private business growth is contracting toward potentially sector shrinkage (which for you WestPalmBeachers out there means ‘tis going backward). And ‘tis not just amongst the PIIGS, which as herein suggested in the past may have to see such acronym revised to FIGPĪS, (pron. “fig pies”) such as to incorporate France. Meanwhile, now we’ve Spain politically pressing the point that “…a month’s worth of austerity is enough; let’s go get Mario’s ECB to print us some more money…”. Euro Verabarrel.

Notwithstanding another asset implosion as we saw in 2008, ‘tis all falling into Gold’s hands here as it seems the great debt-mired, interlaced economies of the world are synergistically slowing down, and yet to adhere to plans austere is too severe, (i.e. the natural human spirit yearns to be free). The Bank of Japan has announced their joining of the Fiat Follies to further debase the global currency supply by penning yen to buy debt. Stateside earnings growth is receding and our own Economic Barometer is being “dissed” (I believe is the expression) by the S&P…

…which of its own accord after being repositioned each evening/pre-open by the futures boys (including those, I’m becoming ever more convinced, in Washington DC), essentially just drifts sideways through actual stock market hours. Buying into a Wall of Worry is one thing; buying into an S&P priced “live” at 24.7 times trailing twelve months earnings, the growth of which is running out of puff, in concert with a teetering economy and fiscal cliff in the New Year offing is, well… let’s just say I hope you are keeping your trading stops tight ‘n snug up here.

With respect to Gold, as alluded to earlier by Squire, the Fed is spinning the currency presses to the tune of $40 billion per month until there is, I suppose, indicative trend of the unemployment rate reducing. What we ~don’t~ know, of course, is how many months (years?) Gold has priced in such Dollar debasement. Prudence would dictate going one month at a time. And to play devil’s advocate, is the Fed’s QE3 already working, in a sense, before ‘tis started? Indeed, is it necessary?

To wit: nationwide we just saw the unemployment rate for August drop two pips from 8.3% in July to 8.1%. And now ‘twas just announced here in California - on a global basis the world’s ninth largest economy - that such rate has fallen from 10.7% to 10.6%, and even more excitedly so from 14.7% to 14.0% in Fresno! I feel better about it all already. And “Go Bulldogs!” (Look: you gotta love a school such as Fresno State wherein you can earn a bona fide Bachelor of Science degree in Enology).

That in turn yields a product by which we can raise our glasses to Gold’s fifth consecutive weekly high in as many weeks of the current parabolic Long trend:

Are five consecutive weeks of higher highs excessive? Not really. Gold has gone on runs of 10 or more consecutive higher weekly highs not once but ~twice~ since 2001. But that’s, at best, a nice historical note. More importantly, ‘tis all about the now and Gold’s ability to weather some pullback, should it occur, within the context of another asset implosion, and then to be resilient as the current monetary accommodation (QE3, if not even a QE4, plus that of other nations), again comes to the fore. As I oft put forth, barring the cancellation of all debt and starting over with new currencies, money already spent that never existed need be created through real economic growth, else via the printing press. Period.

Short Silver (?)

As displayed in our prior missive, Silver has been on a tear of late. Whilst all were rejoicing about the S&P having gained 4% in two weeks, little was made of Gold's having gained almost 10% in four weeks, nor of Silver's gaining almost 25% in the same time frame. To be sure, I’m not a proponent of shorting Gold. (In fact, did you see this week that Deutsche Bank analysts Brebner and Fu discovered that Gold is money? Talk about chiming in from the Patently Obvious Department. That’s right up there with Time Magazine’s discovering during the 1990s that men and women are different. The world can only marvel at these indispensable discoveries).

Anyway… I don’t have any compunction against shorting Sister Silver, especially when she changes from out of her Precious Metal Pinstripes into her Industrial Metal Jacket. And should the S&P suddenly go wobbly through here, taking Gold down with it for a stint, (per that positive correlation noted shown at the outset herein), Silver by default, too, would of course fall. And here’s what I’m seeing:

You regular readers are familiar with our “Baby Blues”, that powerful trading indicator we use for Gold and the other BEGOS markets that suggests the earliest indications of linear regression trend change. Below, we apply them to Silver in this chart of her Daily Bars for the last 21 trading days:

Note how the Baby Blue dots are still well above the 80% level as scaled by the left-hand axis. That justifies the obviously strong uptrend for Silver of late. However, the dots now are just showing the very early signs of rolling down a tad, which could portend a near-term move lower for Silver, perhaps from this most recent 34-35 trading range down into that of 33-34. I realize that a one-to-two point move lower for Silver doesn’t seem like much. But for the pure trader out there, a one point move in Silver equates to $5,000 per contract. Please try to not get carried away, (else you’ll likely be carried away).

Next week marks the end of the Third Quarter in stride with a good dose of incoming economic data that 'twill affect the Econ Baro. Then, hard as ‘tis to believe, in a week’s time we’ve the Sesquicent Edition of The Gold Update. Will Gold have tapped 1800 by then to have passed through the Forces of Resistance and thus stand at The Final Frontier (1800-1900)? Stay tuned and be sensitive to any material setback in the S&P for ‘twould also retard Gold, unless like we say, we’ve Gold Breaking Away.

Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
Structural Resistance: 1810 / 1843
The Final Frontier: 1800-1900
Trading Resistance: 1786
Gold Currently: 1775
The Northern Front: 1750-1800
Trading Support: 1772 / 1765 / 1759 / 1746 / 1734
Structural Support (above 1700): 1745 / 1725 / 1704
The 300-day Moving Average: 1673
The Weekly Parabolic: 1587
The Floor: 1579-1466

Ciao for now,

Mark Mead Baillie

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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