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Gold: Is The Real Excitement Ahead?

By Mar 09, 2014 07:32AM GMT Add a Comment
 
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Now just because -- as did Lawrence before me and Moses before him -- I have ventured into the desert, desert you I shan't dear readers, for 'tis Saturday morning and thus time to compose The Gold Update, as abbreviated an edition as is this one.

Warm (understatement) greetings from Scottsdale, Arizona, where harmoniously man lives with the gila monster. As does one in France learn to walk about with one's head bowed to avoid the sidewalk presents left by les chiens, so does one here keep the eyes peeled -- as well as ears pricked -- for the sudden presence of the rattler. (The air carrier flat out refused to transport as serpent protection my pet skunk Pepé Le Pew II). Yet without further ado, time being at a premium and Squire online at the controls up in San Francisco, here we go.

Were it not for the Crimean crisis, I ought think Gold to have put in a down week in concert with my recent expectations, and as also we've been anticipating, a pending negative MACD (moving average convergence divergence) crossing on the daily time frame. Instead, the yellow metal put in its 10th up week of the last 11, albeit again producing a fairly stubby bar as compared to the ranges we've typically been seeing across the weekly time frame:

Weekly Gold Bars
Weekly Gold Bars

And with respect to the daily MACDs we portrayed last week for Gold, Silver and Oil, that study has now turned negative for all three of those markets. Thus our sense remains near-term for lower prices, and then certainly for Gold more broadly, higher levels -- and notably so should price break above that long-time stalwart technical supporter, (whose springs clearly went a bit wobbly over the last two years), the 300-day moving average. Yes, Gold's having risen in 10 of 11 weeks has been a noble achievement, sending many-a-nattering nabob back to its nest. However the real excitement is waiting in the wings, and likely so as the young year further unfolds:

Gold Price
Gold Price

Next we turn to this dual-panel display: on the left are Gold's daily bars for the last three months-to-date upon which are imposed the "Baby Blues" that are indicative of the 21-day linear regression trend's consistency. The blue dots being above the +80% level is reflective of that trend being firmly to the upside; but their now rolling over in concert with the stubbiness of the aforementioned weekly bars reinforces our expectation for some natural ebb in price. Meanwhile on the right, the 1338-1334 cluster in the trading profile has become the key near-term area to hold; with a fresh week in the balance, that suggests little margin for error. Again, a near-term tap of the uppermost 1200s would hardly be untoward; moreover 'twould be healthy within the overall renewed bullish environment:

Gold Day
Gold Day

Two more quick charts on Gold and then we'll wrap up this desert dash with a comment on the S&P.

As noted a week ago, Gold and its Market Magnet have essentially come back together, however 'tis the sign of a strong market when -- in this rare case -- price has been playing the role of the attractor and the magnet that of the attractee. Either way, I expect we'll see Gold's price slip sub-magnet prior to the next substantive move higher:

Gold Daily
Gold Daily

Our final graphic for this edition shows the daily percentage track for Gold versus that of the S&P 500, month-over-month (last 21 trading days), their prior negative correlation having turned positive and both markets up a sprightly 6%:

Gold & S&P
Gold & S&P

Now as for the S&P: long-time readers know of my quizzical eyebrow-raising when it broke above 1600, then 1700, then 1800, to now sit on the doorstep of 1900. The parking of accommodative dough in the equities markets has left the once time-honoured concept of price relevancy to earnings in the dustbin. Our "live" prudently calculated p/e ratio for the Index is now 32.3x, (and yield 1.990% vs. the 10-year T-Note's 2.790%). How high might the p/e go? To 50x? Why not 100X? I applaud those who've had Long positions in, and are benefiting from, stocks throughout this uncanny, non-corrective multi-year ride. And yet if we're prescient that the FOMC curtails its tapering operations toward mid-year -- and were the Economic Barometer to weaken further still such that stimulus would instead be increased -- does that not then mean even higher S&P levels are on the horizon? Some folks certainly think so, if not specifically by that reasoning. To wit:

In the wee hours of Tuesday morning, Bloomy radio brought on a well-known equities perma-bull interviewee from one of the leading investment banks. Herein withholding the person's name, (so as not to foster publicity, let alone save them from embarrassment), they said: "Stocks are at attractive valuations ... [and] ... consumers are flush with cash". Given the real p/e ratio, the first phrase I do not understand at all, but perhaps the latter makes sense, for 'twas just reported yesterday (Friday) that consumer credit rose $14 billion in January -- but countered by the Fed's cranking out $55 billion/meeting, then we can only be awash in wealth, right?Who knew!

In closing, it appears to matter not that the S&P is terrifically overvalued, (to say nothing of Gold's being undervalued per the pace of monetary accommodation): stocks are being bought on the sense that things are getting better regardless of valuation and economic mis-information. Of course: we know from that which history has time and again taught us: such periods of mis-priced market euphoria lead to exemplifying the quintessential convention of "the higher you fly, the harder you fall". And just as we saw in 2000-2001 and 2008-2009, whenever this next crash hits, 'tis gonna be a doozy.

As I replied to a very valued reader who wrote in this past week: "Meanwhile the suicidal S&P remains the eighth Wonder of the World. (Its inevitable crash ought be quite spectacular; I hope I can get a good seat). "

Oh how the ship they shall desert!

Speaking of which, as now the sun rises from just beyond Camelback Mountain, a tip of the cap to Squire for relaying the data down to us from the mother ship, (and don't hoover the entirety of the wine cellar up there young man!)

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