Gold And The Need For Dough: Leaving The 1200s For Good?

Just as Gold one month ago did break below its mid-April low of 1322, (which I’d deemed would be as low as ‘twould go), so on Thursday did the S&P 500 exceed its late-May high of 1687, (which I’d deemed would be as high as ‘twould fly), and thus I’ve been a tad off on both counts. Not that misery ought love company, but neither have Gold’s nattering nabobs of negativism been correct about Gold getting down to zero. Which in turn is remindful that in a world chock full of worthless assets, Gold always is worth something and, by every correlative debasement measure up with which I can come, materially more so than ‘tis currently valued by the market. The need for dough, (assuming ‘tis faux), is what makes Gold go, which in a sad sense is becoming evermore apparently so.

Today Detroit, tomorrow Deworld. Here in California of course, we’ve already witnessed the bankruptcy bug having bitten Stockton, Vallejo and “San Berdoo”. The closure of fire stations and such is unsettling to all, but when taxpayer and other public funds get wasted upon life’s non-necessities, this is what happens. It hurts to see MoTown, rather than musically Image”Gettin’ Down”Image , simply go down. Whilst bankruptcy’s role is to work it all out and right the ship, the damaging toll to which so many have already succumbed en route is massive. And Detroit as a Municipality, unlike at the Federal level, doesn’t have Uncle Ben Bernanke to bail it out.

However: the nation as a whole has Big Ben to keep filling the hole. And at the current Dollar debasement rate of just over $1 Trillion per year, why not just peel off a cool 2% of such of annualized accommodation, ($20 Billion reportedly being the most Detroit ought need), neatly pack it into the boot of a Camero and drive it on up to the Motor City? (I know, ‘twould set a bad precedent, and were California to then make its call, they in turn would probably demand the entire $1 Trillion, delivered to Sacramento in Ms. Pelosi’s purported jet, no less).

One can only hope that a reconstituted Detroit shall rise from the wreckage of its abandoned homes and so forth. Residents’ spirits have been bolstered by the area’s great sporting franchises of the Pistons, Red Wings, Tigers and Lions, the latter’s previous football stadium so pointedly evident of Detroit’s difficulties: the Silverdome opened in 1975 at a construction cost of $55 million, only to be sold in 2009 for just over one-half million Dollars, (the average price today of a home in Stamford, Connecticut).

If it can happen in Detroit, it can certainly happen anyplace where spending and debt pour well beyond the monetary wiggle room pale. The great contemporary Constitutional scholar Mark Levin recently remarked that day-to-day life in America seemingly rolls along just fine, (i.e. we’ve got our cars and restaurants and houses and iPhones and Kardashians), such that we don’t notice the ever-tightening circle of political and economic tyranny surrounding us, subtle to most as it may appear.

‘Tis not so subtle here in San Francisco, where ‘twas just announced that parking meters city-wide are now enforced on Sundays and holidays, (25¢ = 7½ minutes). And should you return just one-half minute late and the meter maid in the motorized mini-outhouse beat you to your car, you’re out 65 bucks. Oh, and no front license plate? (And quite a number of modern day car models don’t even come anymore with front plate mounting brackets), slap on an additional 114 bucks. It now costs $8 Billion annually to run this once wonderful town of 800,000 residents: that’s a yearly cost of $10,000 per person, and City Hall’s after every private sector penny they can muster.

The point is, naturally, that this whole spending methodology is scalable right up to the Federal level in Washington, DC, the reality being that as nice as life is, the amount of monetary wiggle room to keep it all going is shrinking…

…which of course is the effect of living by deficit. And our man Squire got it right some weeks ago when asked should the Fed taper its quantitative easing program what would then happen: “more quantitative easing” being his correct response. Short of taking the hit on our unconscionable levels of debt and starting over, perhaps with a silver-based Amero…

…we’ve already gone way too far, shall only perpetuate such, and Gold can therefore in its broad-based trend only trade well up the road from current levels as more Dollars are nurtured form naught. Globally, a trend of some 7,000 years shan’t be bust by the machinations of two, especially in this era of growth in debt, worldwide currency debasement, and love ‘em or hate ‘em, government.

To get a grip on how artificial ‘tis all become, we traders would amusingly in the past envision headlines such as “World Ends; Dow Up 2”. Thursday was a little bit closer to reality: “Detroit Files for Bankruptcy; Dow Up 78”. Given that’s the way it is these days, we go to the following graphic of two markets, purposefully unlabeled, and charted on logarithmic axes along with their 300-day moving averages (the blue lines) since 2002. Which of the two would you opt to purchase? Through the eyes of the technician, the one on the left somewhat dubiously appears to be the better choice:

Of course, the left-hand panel is the S&P and the right hand panel is Gold. The latter’s recent fallout (-40% from its All-Time High), which we believe had gone beyond the silly zone, is not quite as dear as was that charted by the S&P (-58% from its prior All-Time High) during the beat-down by the wings of 2008’s Black Swan. Through the eyes of the fundamentalist, is it earnings that are holding the market up today? Ex-those who chase “beating estimates”, no -- not at a “live” p/e of 27.8x, (Bob Shiller’s inflation-adjusted version closed the week at 24.7x), and yield of 2.059%, (versus the 10-year US T-Note’s 2.491%).

Then is it the pace of economic expansion that is drawing folks further into stocks? June’s growth of Leading Economic Indicators was just reported as flat (0.0%), albeit our more prescient Economic Barometer has well (and truly?) been on the rise throughout June-to-date, (assuming the governmental data component contributions are believable) Or is it simply as we’ve herein graphically demonstrated before, “Nuthin' But QE”? Remember: the equities era today is positive as long as the free dough keeps on comin’, but ought turn negative sans accomodation should there be real earnings growth and economic expansion, for by such “old school” measuring, the market’s valuation is clearly too high.

Chairman Bernanke may be staying the course with those monthly Fed purchases of Treasury debt and mortgaged-backed securities, but just his utterance on Wednesday of the phrase "I think markets are beginning to understand our message" did momentarily strike tapering fear into the markets’ collective hearts right ‘round the BEGOS spectrum. Here’s how it looked on our one-minute screen when thus spake Ben those few words:

(The markets clockwise from top-left are the Bond, Euro, Swiss Franc, Gold, Silver, Copper and Oil, the large chart being the S&P).

Specific to Gold, by week’s end price had once again recovered, its being a bargain becoming more evident to the few participants paying attention out there and using their brains:

‘Tis just the third time since March that Gold has risen for two consecutive weeks, and only twice year-to-date has it gone up for three weeks in-a-row. My sense is that Gold shall again put in a higher performance in this ensuing week, and on balance, finally be leaving the 1200’s for good. At least that’s what I’m gleaning from the remaining three charts in this week’s missive, (all in the form as they shall appear, as updated daily, in the new version of the website for which we’re still targeting a launch coinciding with Swiss National Day on 01 August).

Let’s begin with Gold vis-à-vis its smooth pearly valuation line, (established by Gold’s price movements relative to the those of the other BEGOS components). Oft thought of as “everybody’s favourite chart” given the expected profitable follow-through at line crossings, this full year-over-year view has been anything but friendly to the Bulls. Yet ‘tis once again finding Gold making another run to penetrate above the valuation line, the trading notion thereupon to be Long:

Enough of this incessant repelling in that oscillator view! Maintain this Gold Mantra: “QE by 3Bee per day … yields 1Tee per every année.” And that’s only including Dollars…

Next we bring up (pun intended as they are indeed rising) this now three-month view of Gold’s Baby Blues. The dots are a measure of 21-day linear regression trend ~consistency~. As you can discern, should the dots and price continue to rise, the target area would be that congestion of pricing through the center of the chart towards the upper 1300s/lower 1400s…

…getting above which in furtherance ought really accelerate the buying pace on the notion that Gold will be coming up from the “sous-sol” (i.e. the sub-1466 basement) and at least returning back into The Floor (1579-1466).

Our final graphic for this week may hold the most encouragement: ‘tis that of Gold’s trading profile, (horizontal bar distance being contract volume per price point over the past 10 trading days). Again, ‘tis how ‘twill appear day-by-day at the new website, the 10-session vertical span being the grey bars, the most recent session, (in this case Friday), being in Gold bars and the latest closing price the white bar, near the top there at the 1296 level. Gold’s daily lows this past week were regularly down towards “Big Ben Gap” beneath that most expansive apex at 1284, but time and again, in came the buyers, to wit making yesterday’s Golden Swath a beautiful thing:

Clearly Gold has been in a severe correction to the point of falling out of its positive correlation with monetary accommodation. Now we’re looking for the signs of Gold’s returning to ride in stride with the ongoing debasing of currencies both at home and abroad.

Across the Pond, I see Europe as terribly behind the recovery curve, which made this series of headlines from yesterday’s FinTimes appear almost comical: “EuroZone assets head off on summer rally; Europe enjoys dreamy break from structural and debt problems; Euro strength defies the bears; Eurozone data buoy hopes of economic recovery”. This coming practically on the very heels of the OECD’s expectations that jobless rates shall remain high. Broad-brushing it, the North seems to thrive, the South seems to dive, whilst in the middle of it all Switzerland’s Schweizerische Nationalbank maintains the Franc’s peg to the €uro in hopes of its not-so-inevitable swoon. One wonders if ‘tis actually that peg which is keeping the €uro aloft (?) In any event, you can bet that the ECB is not about to recycle their printing presses as e-waste.

Across the Pacific, it seems out of sorts to have concern over China's GDP growth of 7.5%. Of course, this is merely one-half of what ‘twas in 2007 and the trend is continuing down. Now the People’s Bank of China has just announced their removing the floor on lending rates. And as you know, when rates go low, currency supplies doth grow per the need for more dough. ‘Tis the irrepressible Gold Positive.