On That Negativity Over Gold

There’s no doubt about it: anyone who has stayed the Gold Course these last two years has been summarily whacked; anyone who has added en route has been further whackered; and anyone who has bailed out along the way only to find themselves in the future re-entering above their exits points -- or stubbornly not at all -- ought well end up being the whackedest, (and the Shorts with one-way fares to the looney bin for having become the whackiest).

To be sure, there is not enough lip gloss and makeup in the entire combined empires of Chanel, Dior et LVMH to cover the boils and blemishes in Gold’s porker pen these many months. But per this week’s missive as we put perspective to that which has been deemed so negative, I’ll think you’ll find that the former trumps the latter.

There have been 475 trading days since Gold hit its All-Time Closing High of 1900 on 22 August 2011, (the All-Time Intra-Day High of 1923 being two weeks later on 06 September 2011). Acknowledging Gold’s having closed yesterday (Friday) at 1283, even your six-year-old has been taught in first grade to understand the number 1283 is smaller than 1923, such that little Petunia or Egbert if looking at a Gold chart from then through now could point out to us that the trend is down.

Now let’s add some perspective to the carnage and go back to the 475 trading days leading up to 22 August 2011, starting from 05 October 2009, which was just after Gold had pierced above the 1000 level for the very first time. With the 1900 All-Time Closing High as the center point in the following chart, here we have Gold’s 475 closes (in green) leading up that high, and then the 475 closes (in red) since same, through yesterday:

Note therein the two dashed regression trend lines and the deviation of price from them both. We’ve oft quipped that Gold had gotten ahead of itself, only to now find it behind itself. Ya think?

The upside green climax is less deviating from trend than is what well could now be, (or indeed could have just been), the downside climax in red. Yet further, as we’ve pointed out in the past, unlike for other markets, Gold has a tendency to ascend at a steeper pace than does it descend: observe the slopes of the two trend lines. The buying green trend was more consistent and notably steeper than the more sloppy and slightly less steep selling red trend, suggesting that this most recent deviation was far too excessively low. Moreover, ‘tis interesting the level where the two trend lines cross right of center: just about at the base of The Northern Front (1750-1800). Anyone for a regressing up to that crossing of means, (nudge nudge, hint hint, elbow elbow?)

I know I’d certainly welcome a 500-point upswing. Might actually quell all that rampant negativity out there which is seemingly besetting us Gold Bulls at an ever-accelerative pace. I mean honest to Pete, just this last week alone ‘tis as if the needle on the Gold negativity meter broke right off of its pivot. Phone calls about how ‘tis over for Gold, handholding e-mails of consolation, portfolio allocators finally deciding to throw in the towel, mainstream media articles on how bad the Gold crash can get, FinRadio talk show hosts telling listeners to stay the heck away from Gold.

And yet all the while I’m scrambling about the nooks and crannies here at the Residence in search of some old asset or two I shan’t ever need that I can hock to buy more Gold. (Anybody interested in a first edition 1810 printing of Stockdale’s “The History of the Inquisitions”? Yours for yesterday’s closing Gold settle at 1283).

The point is: as penned by Kipling, “If you can keep your head when all about you are losing theirs and blaming it on you…”, I say “Bring ‘em on, I’m stayin’ long, for ‘tis not wrong to be Gold strong.” Write it down Mr. Short. Besides: ‘twill be an absolute hoot to see you careening off the padded walls like a scalded cat in the ensuing surges.

“Going Back Back Back…”

It seems that many are expecting a return to those years left of the vertical red line in this next chart, wherein following Gold’s spike to 800 back in 1980, price then languidly drifted lower for two decades. Note the quiz therein:

Prior to 2001, no one had really ever heard of the word “debasement” other than its being used to describe where, during those torrid two weeks of the family’s summer visit, you’d house your mum-in-law. And for extra credit in the quiz, if you also said “global currency debasement”, you win a Gold star. Indeed with respect to that left side of the vertical red line, the economic, market and trading dynamics of those days are long gone; if you think Gold is retreating back to those times and doldrums of yesteryear, I've got a bridge I can sell ya that spans from Tillary Street in Manhattan to Pearl Street in Brooklyn. Instead, the far more robust price swings of these last ten years are now the norm. Just as Gold’s sweet chariot can swing low, oh boy can it swing back high as well.

Talk is cheap in MediaLand. ‘Tis ever so easy to limitlessly lambaste Gold: “Oh it’s post-1980 all over again, Oh it was a bubble all along, Oh I can’t buy food with it at Safeway.” They’re very good at putting in one’s mind that picture of Gold after its spike thirty years ago. Here, we again bring perspective to the fore. We all understand that Gold’s veritable strident support measure of price -- the 300-day moving average -- has met with the trash compacter, its role as préservatif having become fini, terminé, disparu. (As ‘twas Bastille Day yesterday, we’re rollin’ out a little of the French lingo there). But consider in this next graphic Gold’s percentage deviation from its 300-day moving average back in 1980 versus its more typical deviations of extreme since then:

What that tells me is that Gold’s run up to as high as 1923 two years ago is incomparable to that thin and lackluster illiquid spike back in ‘80.

“But mmb, everybody says the Dollar is getting much stronger, and just like in that chart you showed a couple of weeks ago of gold going to zero -- what if that really happens?”

Squire, let me initially address your second concern. Assuming you’re StateSide, simply renounce your U.S. citizenship, deport yourself, then mosey back in at the border crossing of your choice and get everything for free for life. (Might become the “in-thing” to do these days). As for all that stand-up-and salute Dollar strength and salvation, indeed salivation, that is going on out there, and its furthermore scaring the crap out of holders of Gold far and wide, let’s once again fire up that word perspective:

Really?? Again: talk sans perspective is cheap as the chart makes the point.

‘Course, in the midst of all this mid-week came Federal Reserve Board Chairman Ben Shalom Bernanke’s Cambridge Comment: “Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy.” Again: Ya think?

Naturally this propelled the entirety of the BEGOS markets complex (Bond/Euro/Gold/Oil/S&P) up into Wednesday evening, sending the Dollar Index down almost 2% from 84.245 to 82.600 whilst most StateSiders fought traffic, fed on frozen food, and flopped for their usual indoctrination from prime-time programming.

Here, however, I fired off a Dollar-Down e-mail to one of our most astute readers, (code name “BunkerBear”), who immediately replied in the usual no-nonsense way as follows:

“It's impossible to retain purchasing power of any currency especially through excess printing. Bernanke is caught between a rock and a hard place. What to do? Raise interest rates? All borrowers die. Keep going on the same track? The dollar dies. The "Boyz" can't have it both ways. It's economic death by a thousand cuts -- slow and agonizing! Got real Gold?”

Exactly right my friend.

To the current state of Gold’s affairs we go, commencing with the weekly bars and now fourth week of parabolic Short trend per the red dots…

…not that the prior Short trend in a practical sense ever ended. As was pointed out at last Sunday’s Investors Roundtable, those two weeks (blue dots) of Long trend now appear as merely an aberration. But the downside Gold level I’m most sensitive to is the 1179 low from two weeks ago. That was close enough to Gold’s All-Time Golden Ratio Retracement level of 1188 about which we then wrote. Being almost 100 points above that area now doesn’t seem like much; yet another 100 points up from here would put Gold back atop Base Camp 1377 with the parabolic flip from Short to Long in the balance at 1395 as indicated in the graphic.

Back, too, to Positive Correlation?

Regular readers know we’d been anticipating Gold and the S&P to depart from what had seemed their endlessly positive correlation, notably up into Gold’s 2011 All-Time High and again up into its secondary high of 1798 last October; our notion was for the correlation to turn negative such that the S&P would decline and Gold would rise into uncharted territory. Indeed the correlation did turn negative, but as you know, 180° out of our expected context as instead the S&P got ranked higher whilst Gold got tanked lower. But just over the last 21 trading days (one month) it appears these two markets have moved back into directionally positive correlation. Yes, Gold on a percentage basis has succumbed mightily with its lemmings leaving the building, further exacerbated by Short interest rising to record levels, however the overall bent of the two tracks is not that dissimilar, both falling together through the left-third of the chart, and essentially both on the rise from the midpoint onward:

Can the S&P maintain moving higher? Fundamentals mean little when The Chairman proclaims the free dough will keep on comin’. Should the S&P (currently 1680) climb a mere eight points more to 1688, I’ll be wrong about its high at 1687 being in for the year. Q2 Earnings Season is only just underway and thus ‘tis understandably too early to glean anything there, (outside of good bank earnings, but what ought one expect from them given all their free dough? Why lend when you can simply ride the equities markets higher?)

Our Economic Barometer has been doing better of late, albeit as you know Q1 GDP was revised lower to an anemic 1.8% annual growth rate, (and China is worried that theirs may only be triple that). The yield on the US 10-year T-Note backed off a bit this past week to 2.601%; however that still betters the S&P’s 2.070%, (with its “live” p/e ratio now up to 27.7x – gulp!) Lot’s about which to fret out there as we speed toward the inevitable, impenetrable wall.

Meanwhile Gold’s Baby Blues which measure the 21-day linear regression trend's ~consistency~ are once again making the big turn from South to North as we see here via the daily bars for the last month:

As pointed out last week, ‘tis been better than nine months since the Baby Blues were above the +80% level in that chart, indicative back then of a firm 21-day uptrend. More recent South to North moves have, of course, simply keeled back over. Yet should this at long last truly be “The Turn” we may well see the blue dots flourishing +80% -- surprising many a pundit -- in swift order.

Returning to Big Ben for a moment, a tip of the cap this week to him as his Cambridge Comment was remindful of the proper relationship between currency debasement and the price track of Gold. And per usual, the need for stimuli does not stop here as the IMF cut its global growth forecast, as the expansion of emerging market economies is slowing, US expansion as just noted is weakening, China's economy is leveling off and Europe's recession is deepening. The latter ought not to be taken lightly as Germany’s industrial production decreased in May as did the UK’s manufacturing data, (suggesting for the Isles more Sterling debasement by the Bank of England). And Greece has just negotiated for more funding aid such as to keep the European Community Bank presses a-spinnin’. Although ironically to all that, Spain just announced that they do not need further EU aid despite that PIIGS-nation’s challenging economic and fiscal situation -- we’ll see how long that declaration lasts; and li’l ole Ireland just had its credit rating outlook upgraded to positive by S&P. (Perhaps one wee dram o’ whiskey too many by the analyst there?)

Again with regard to Big Ben, skirting the northern boundary of California’s Gold Rush environs is Placer County with its notable geographic locales of Yuba Gap, Emigrant Gap, and all the other such gaps along Interstate 80 as it traverses the high country. And one might have just felt those nuggets still embedded in ore tremble to life upon Ben’s Cambridge Comment, in turn adding further geologic form this latest view of Gold’s trading profile, the current 1283 price, and indeed apex, as noted in red:


Hooray for Gold in getting above all that mid-chart resistance! The key is now not to retreat back down through it, but rather move onwards and upwards. And thus for more overhead guidance we’ll close it out for this week by turning to the Gold Stack:

Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
The Final Frontier: 1800-1900
The Northern Front: 1750-1800
The 300-day Moving Average: 1592
The Floor: 1579-1466
Sous-sol: Sub-1466
The Weekly Parabolic: 1395
Base Camp: 1377
Structural Resistance: 1310 / 1322-1337 / 1381 / 1463-1479 / 1527-1581
Trading Resistance: (none)

Gold Currently: 1283, (weighted-average trading range per day: 33 points)

10-Session “volume-weighted” average price magnet: 1244, (range: 1297-to-1179 = 118 points or 9%)
Trading Support: 1255 / 1248 / 1235 / 1225 / 1219 / 1213 / 1202 / 1192
Structural Support: 1195 / 1033