Gold’s June Surprise?

Ruby Hill (historical site), Eureka, Nevada

June 02, 2014

As U.S. stock markets break all-time highs, market anxiety is approaching new lows. The Eureka Miner Market Anxiety Index is derived from S&P 500 and its volatility index, or VIX, together with the Comex price of gold and copper, U.S. dollar index and 10-year U.S. Treasury note. It is a measure of fear in the marketplace with a threshold value of 100 as shown in the Figure 1 plot from mid-2011 to the present:

Figure 1 – Eureka Miner Market Anxiety Index

During the 2011 U.S. debt debacle and resulting debt downgrade, the Anxiety Index peaked at 271 (i.e high anxiety) and then fell to a complacent low of 39.3 last May. Fortunately since 2012, anxiety has remained below threshold (100) except for a spike June 4, 2012 (103.8) and June 24, 2012 (100.9). The second spike followed a flurry of market uncertainty after the Federal Reserve's announcement that their bond buying program, or QE3, would taper from its $85B per month pace. The Index reached its June peak on what was then described as a "taper tantrum."

Interestingly, the Index approached a new low as the markets closed out the month of May at 40.8 (green arrow). Will history repeat with another June surprise?

Kitco News Global Editor Debbie Carlson was kind enough to include my thoughts on what may happen to gold price for the short-term in her weekly Kitco Gold Survey:

The gold price faces a double-threat: record-breaking U.S equities and a strengthening U.S. dollar. As the unloved stepchild in the commodity family for the last six weeks, the family now finds itself under pressure with downturns in oil and copper and ominous warning signals coming from tumbling iron ore prices in China. The yellow metal is likely oversold and some technical relief may come with the new month. Russian troops pulling away from Ukraine’s border removes most geopolitical reasons to rally back to the $1,300 level, but gold could challenge [Wednesday’s intraday high] of $1,267 per ounce.

A spike in market anxiety appears long overdue although the catalyst is unclear and the effect on gold price even less certain. Mid-June 2012 rallied gold prices briefly above the $1,620-level; late-June 2013 witnessed gold plumb sub-$1,200 lows. On the upside, a shake-up in present market complacency could rally gold above $1,300 per ounce but a downside stumble could bring the yellow metal below its 2013 bottom – my best estimate is $1,150.

Pretty quiet out here in the sage for now.

Cheers from the heart of North American Gold Country.

By Richard Baker, CP Value Analytics
Eureka, Nevada
http://eurekaminer.blogspot.com/