Upon the Sunday Evening opening one week ago, Gold went (as best described by that tried-and-true technical phase) “upside gonzo nuts”. ‘Twas one of those “’Tis about time!” moments, rightly seeing Gold hurdle the buy stop limits of many-a-short, whilst perhaps being consoled by that final weekend beer and thinking “Uh… Wha jus ‘appened…” Serves ‘em right, I say. Have another pretzel, kid.
It happened swiftly, as following the prior week’s close at 1296, Gold in last Sunday’s first hour alone ramped right up to 1319, then onward to 1339 come Monday, and further to as high as 1348 in opening Tuesday’s session. If anything, this confirmed that of which there is no doubt: Gold itself reacted straight away to having read its own Update. (Or so it seemed). Just keep it up.
Better still, after misfiring six-and-seven weeks ago when those two blue dots in the Weekly Chart were heralding a change in the parabolic trend from Short to Long, this most recent ascent in the Gold Bars does appear en route towards penetration of those descending red dots this time with a bit more authority, the specific flip price for the ensuing week now having come down to 1378 as noted below:
Moreover, on the heels of that Sunday Opening, Gold’s Monday was its single best points up day (net +39) in better than a year (since 29 Jun 2012), although as we oft quip, “Change is an Illusion whereas Price is the Truth.” And seeing the first two digits of Gold’s price, rather than as “11” or “12”, instead being “13” with levels pushing up into the mid-1300s at that, is most gratifying, (albeit with 100s of upside points over time still remaining in the balance). Of more immediate focus is to achieve the next penetration of the overhead red dots, so as to right the weekly parabolic trend back to Long as well as set the stage for Gold to challenge that resistance area which we described a week ago as lying in the upper 1300s/lower1400s zone, (remember “Base Camp 1377”?) To Gold’s structure chart we go:
In fact, charts and fancy findings aside, one can sense the sea change in sentiment simply by observing the daily ebb and flow of the Gold trade over the last few weeks: each time a material spate of selling kicks in, which is not unusual in even the most bullish of market trends, one may well think “Oh no here we go again”. But then price meets with an underlying apex, such as depicted in the Gold Profile at the foot of this week’s missive, or a technical “pivot level”, or some other base of structural support; and thus rather than continued piling on by the sellers, (such as has been so much the case in recent months), the buyers are instead pushing price back up. You can “feel” the swing in sentiment … and it feels good. Not to get carried away, however let’s first get up to Base Camp 1377 and then see what happens. There is certain to be at least repelling efforts afoot up there.
What a Shock: We’re Talkin’ Stock
Regular readers realize that I am not a stock-specific person, my analytical focus primarily being on the great markets that comprise the BEGOS spectrum (Bond/Euro/Gold/Oil/S&P). Truth be told, about as stock-specific as we here get in The Gold Update is in the month-end portrayals of Gold versus its precious metals index brethren in comparing their year-over-year percentage performances, (adding to that mix the one stock of Royal Gold (RGLD) as ‘tis such an amazing roller coaster trading vehicle).
Now given the intention to “flip the switch” in igniting the new website this week on 01 August, (having, as you know, selected Swiss National Day for luck, a firm financial foundation, and getting off on the right foot), we’ve stumbled into an interesting discovery, and likely one of which most of you that follow Gold equities are already well-aware. Nonetheless, let’s make mention of it here. A page in the new website deals with the S&P 500’s valuation along with various ranking lists of the Index’s specific constituents. One such listing is that which combines low price/earnings ratios with high yields, (admittedly suggestive of fundamental duress). Be that as it may, in running daily tests for preparation toward “going live”, guess which company within those 500 stocks ranks second by such “value” measure?
“Newmont Mining, mmb?”
Absolutely correct, Squire. (I’d hoped I’d not given it away…) Nonetheless at $30.38/share with its current P/E of 9.2x and yield of 4.678%, I ought think that the venerable Newmont (NEM) at least be on one’s “watch list” if for no other reason than the stock’s having comparatively attractive value, (and after all ‘tis a member of the mighty S&P 500). One might even refer to it as a “Dog of the S&P”. ‘Course, at the end of the day, the Dogs of the World are its bow-wow inflated currencies, as opposed to Gold, and thus the yellow metal assets of Newmont are essentially true currency. Here is a chart over the last 23 years (per monthly closes, plus that of yesterday for July) of Newmont Mining as a percentage of the price Gold:
You be the judge. For having said all that…
The higher the QE-driven S&P climbs, the more unsustainable by measureable market sanity, or perhaps better stated -- irrational inanity -- ‘tis become. The first set of charts to greet my eyes each trading morning are those of the BEGOS market’s “Baby Blues”. To wit, when I awoke Tuesday morning, here is a screenshot of how the chart for the S&P then appeared over its past 21 trading days to that moment, the attendant linear regression trendline and baby blue dots describing the extremely high ~consistency~ of such trend:
Immediately came to mind the closing line from the 1976 Warner Bros. production “The Gumball Rally” upon actor Tim McIntire looking into the eyes of Michael Sarrazin and quietly asserting: “This is ridiculous...” Further, if we project that linear regression trendline into the future, ‘twould put the S&P (currently 1692) at 2000 this 30 September and at 3000 on next 16 May!
At 1400 the S&P was already getting pricey; at 1500 ‘twas clearly overbought by any host of textbook technical studies; at 1600 it rightly became John McEnroe’s “You canNOT be SERious!”; and now its knocking on the door of 1700 is beyond buffoonery. Apropos thereto is another film quote, this one by Roland Culver in the role of Great Britain’s Foreign Secretary: “…payment shall have to be made…” --(‘Thunderball’, Eon Productions, 1965).
To the extent that the S&P’s hyper track is essentially, if not entirely, QE-induced, this can only serve to be a Gold Positive. But then, one might think back to those days when we were taught in B-school that the stock market is a hedge against inflation. And to that end, is this meteoric rise in the Index simply making up for lost time? Versus its 1692 reading today, its high back in 2000 was 1553. Excluding dividend yield, ‘tis a net increase through those 13 years of less than 9%. Oil since the end of 2000 is currently 283% higher and Gold 387% higher. But again, the true capitalization-weighted calculation of the S&P’s price-to-earnings resulting in such a comparatively high ratio (at this writing 28.5x) suggests the Index has simply gone way too far.
Inflation hedge or not, is the S&P ever trading on fluff these days! Our factoring the amount of Moneyflow it takes to move the Index up or down one point is sinking to such lows that even Joe Six-Pack’s own 401k can move the market. Here’s that factor measure from May-to-Date: 
(Actually, Joe, ‘tis the Fed that induced it; but I know you like to be included).
Catalysts to crater the S&P are numerous, such as the above lack of substantive Moneyflow that is moving the market, the Index’s high valuation, and a Q2 Earnings Season at large which thus far is not exactly rosy out there: having already collected results for 788 companies, 40% have not bettered their year-over-year performance, and yet the S&P itself is 24% higher than ‘twas on this day one year ago. That is scary.
Then in the wee hours of Friday morning on Bloomy Radio came the voice of one Angus Campbell with FX Pro in London. His take for a catalyst that ‘twill ruffle markets is the effect on the euro generated by Fed commentary with regards to further tapering talk, (upon which all ears shall be this Wednesday, 31 July). The notion there obviously being that tapering implies dollar strength such as to weigh on the euro and increase overall markets’ volatility, investors then realizing they’ve taken on too much risk.
One might consider that would be problematic as Gold and the S&P, per these next two charts, look to be returning to positive correlation. This first graphic is our usual daily percentage track of the markets from one month ago-to-date…
and then via a more zoomed-in view, this second graphic shows the price tracks of the two markets for Friday only during real-time stock market hours…
… which suggests that a decline in the S&P ought well take Gold down with it, especially come any renewed dollar strength. But as history has shown, ‘tis not necessarily always so, (and yes, I am recalling the first half of 2010 during which time the Dollar Index rose as much as 14%, yet Gold as much as 15%. Remindful once again that Gold plays no currency favourites).
As to those fundamentals abroad that lead to the debasing of such currencies, we read this past week of a private survey showing China's manufacturing contracting at a faster-than-estimated pace, (albeit their GDP remains triple that of ours StateSide). But contrarily, then there’s Europe. And they’re getting all excited on the Continent of signs that the recession is ending, mere weeks it only seems since it was reported as deepening. Easy come, easy go. Why just across the Channel, the UK’s GDP is sporting robust growth of 0.6% on broad-based improvements in output. Hold the currency presses!
Gold knows better, of course. Here's its trading profile, again in the form ‘twill appear as updated each day at the new website. Thereto, the grey bars represent the entirety of the last 10 days trading range, the Gold onlays the most recent session’s range, (i.e. Friday), and the white onlay that last session’s close, (1334):
‘Tis been a very impressive stint for Gold of late, climbing atop such intimidating apices of resistance. ‘Tis doing itself proud as the tide is turning per price’s beginning to creep up 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: 1582
- The Floor: 1579-1466
- Sous-sol: Sub-1466
- Structural Resistance: 1381 / 1463-1479 / 1527-1581
- The Weekly Parabolic: 1378
- Base Camp: 1377
- Trading Resistance: 1343
- Gold Currently: 1334, (weighted-average trading range per day: 28 points)
- Trading Support: 1330 / 1320 / 1290 / 1284 / 1277
- 10-Session “volume-weighted” average price magnet: 1308, (directional range: 1269-to-1349 = 80 points or +6%)
- Structural Support: 1266 / 1249 / 1227
A hefty economic schedule hovers over the ensuing week, featuring not just the aforementioned Fed Follies, but a Friday calendar alone that brings us jobs creation data, personal income/spending, core consumption price inflation and factory orders. All market-moving stuff.