Gold Arrives At Its Ideal Ratio Retracement: Now What?

--(Clint Eastwood as ‘The Outlaw Josey Wales’, Warner Bros., 1976)

And with specific reference to Gold, the key, of course, is to stay just that: The Course. Remember on New Year’s Day our posting at the website a Buy for Gold upon that evening’s market open? ‘Twas then at 1676. Today ‘tis 1225, down 26% from that open. If one had taken a position back then via Exchange-Traded Funds or equities, and en route through the tumbling have added more shares, suffice it to say, one has taken a heckova blow to the balance in one’s account. More deleteriously, were one engaging in such increase in exposure via a futures account, (and I’ll leave it to you to calculate the current level of damage to date inclusive of the periodic add-ons as posted at the website), in all likelihood -- to eloquently put it in NASCAR engine expiration terminology -- “Dat account dun blowed up!”, barring it being sufficiently funded.

The Stressful Anxiety of Gold’s Going Back Up

Then there is this which shall be far more difficult for those who’ve been giving up on Gold along its way down, and rightly so across the spectrum of personal risk tolerances, (albeit arguably one ought never sell one’s Gold): ‘twill be having the understanding, the courage and the gumption to Buy back into Gold at levels above where losses were taken. For those who’ve not stayed the course, indeed necessarily being unable to so do, the hardest thing to accomplish will be to leap aboard the Gold Troops' train after ‘tis well up the line from where many disembarked.

Query: whilst the market, as we oft say, is never wrong -- and ’tis not just the so-called “weak longs” that have been shaken out -- has Gold now been beaten down to the point of absolute irrationality and then some when valued against the ever-increasing excesses of the global money supply? Of course it has. Slipping below 1500, not to mention even beneath 1400, in April made Gold a bargain. Now having further dipped below 1300 and then under 1200 such as to briefly pass through its All-Time Golden Ratio Retracement level of 1188 this past week has seemingly made it an embarrassment.

From the standpoint were one not to have stayed the course, it reminds me of an old sports car, (a somewhat rare model year), that I drove back in the ‘70s and ‘80s. Like Gold, it too became irrationally beaten down due to its being hard-driven without the requisite, rational and respective attention it so deserved. Like Gold, it was eventually sold really low to a kid who took the bus down from Sacramento to San Francisco. We met outside a subway station: he gave me $2,500 and I gave him the keys. And like what will happen to Gold, I recently assessed the value for that old car model’s year, and found the asking price now in excess of $100,000, an increase of 3900% over that for which I sold it.

Now I’m not saying that Gold is going to increase by such same percentage from that Golden Ratio level of $1,188/oz. to $47,520/oz. But just maintain in your fertile mind that Gold is a precious metal, it is rare, the amount produced each year is too tiny to be comparatively measured against the unconscionable pace of currency debasement, (compounded by the thus-created debt which has to be “repaid” via more debasement), and that ‘tis been regarded as money from Day One.

Regardless, toward satiating all those disbelievers out there who remain convinced beyond a shadow of a doubt that the yellow metal truly is going to Zero (“$0”), I’ve done them the following favour of determining, via linear regression, the precise date at which Gold ought reach naught, (at which point they can then cover their Shorts). The graphic below charts the price of Gold from its All-Time Closing High of 1900 on 22 August 2011 through its close yesterday (Friday) at 1235, to which we’ve calculated and extended a least-squares linear regression trendline:

And how marvelously convenient: Gold would close at Zero in only some three-and-one-half years on 22 December 2016, just in time for Christmas! Such an affordable gift for the children ‘twill be that little pure Gold wagon with the spoked wheels. As for the Missus? Not just one Gold Rolex watch, but ten! Collect the whole series!

Exit Emotion, Enter Logic

Naturally for you great and good readers who make proper use of your brain, come the 2016 Holiday Season we’ll likely be seeing ceaseless quantitative easings ‘round the world, perhaps a currency failure here and there, salaries supported by government grants as the Executive Branch becomes the Federal Reserve Bank, a global vehicles’ market in collaboration with our Russian friends that offers you not just one, but two “green” models of the reincarnated Yugo from which to choose, an artillery-laden electrified barrier ‘round the entirety of Switzerland that automatically zaps anyone within 10km, and quite obviously Gold approaching the mid-four figures.

In fact, you do realize what occurred this past week with respect to the price of Gold since the Beginning of Time, non? (Of course you do, my perennially being the last one to figure this stuff out). However, in the most unlikely chance that you’ve been off the planet, guess what just happened…

That’s right: given its historical range of price from $0 to $1,923, (the All-Time Intraday High of 06 September 2011), Gold just completed the quintessentially classic All-Time Golden Ratio 38.2% retracement this past week upon touching 1188 on Friday. And don’t think it didn’t go unnoticed; here is the one-minute track of Gold for yesterday’s complete session:

Does this mean that the worst is past? As you know I called the bottom as being in back at 1322. Wrong. But 55 points to the good from low to closing-high in a single session yesterday is impressive, especially given the foundation of the All-Time Golden Ratio retracement level at 1188. Don’t touch that dial (!)

Nowhere to Run? What about Gold…

To be sure, a declining Gold price can bring angst to even the most ardent of precious metals Bulls, their sanity fortunately maintained in the knowledge of it being just a matter of time until price comes all the way back up and beyond, (as has been its dominant 7,000+ year trend). However what really does get the internal acid a-bubblin’ is waking up to reports like this one from Reuters on Thursday, (condensed such as to highlight the salient, or better, shocking bits):

~~~”Europe strikes deal to push cost of bank failure on investors … The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures … The plan stipulates that shareholders, bondholders and depositors with more than 100,000 €uros ($132,000) should share the burden of saving a bank … EU leaders agreed on a significant bail-in to shield taxpayers, for a process in which shareholders and bondholders must bear the costs of restructuring first … The rules break a taboo in Europe that savers should never lose their deposits … a bailout of Cyprus in March that forced losses on depositors marked a harsher approach that can now … be replicated elsewhere … "It makes the whole thing coherent," said French Finance Minister Pierre Moscovici~~~

Oh merci beaucoup, Pierre… upon whose comment I was put in mind of that Martha & The Vandellas powerhit classic from the Spring of 1965 ”Nowhere to run to, baby, nowhere to hide…"

But as we go to the weekly chart of Gold’s bars, as droopy as they appear, I take comfort in the wisdom of the words quoted at the outset of this week’s missive:

Again, it ain’t pretty; still, Gold’s closing at 1235 was the highest above an intra-week low (55 points) since that of the week ending 26 April (59 points) two months ago. As for Gold vis-à-vis its 300-day moving average, that “stalwart, time-honoured bastion of support”…

…such bastion remains well-busted. On a comparative percentage basis to such busting back in 2008 of Gold’s reaching 16% below its 300-day moving average, this time ‘round ‘tis been as low as 25%. Next is part of the reason why.

Caught in the Woes of Commodities’ Throes

Gold, as ‘twas pointed out a week ago, is being disregarded as money and therefore has found itself within the fray of a variety of markets’ downtrends. To wit, this treat of the entirety of our BEGOS markets complex month-over month trading with their daily bars and those Baby Blues, such dots reflecting the consistency of each market’s linear regression trend (the grey diagonal lines):

Course, blame it on the Almighty Dollar, that globally-revered financial hallmark with all the fortified integrity and strength of a somewhat soggy baloney sandwich on white with too much mayo. I mean honest to Pete, folks: is this really happening?

After all, Fed President Fisher just reminded us that any tapering of quantitative easing does not mean ‘tis ending. So that reinforces the ultimate Gold Positive. Yet Fed President Kocherlakota put forth more oxymoronically that the Fed must emphasize its remaining accommodative for a considerable time after the end of quantitative easing. Really? A) does that make any sense and B) what can they dream up next? As long as ‘tis not an organized deflationary depression, ‘twill only be a Gold Positive. Perhaps many of them.

As to “over there”, European Central Bank president Mario Draghi said that their monetary policy would remain accommodative, any exit from such remaining far off. Poor chap: an audit now shows that his own Italy risks potential losses of billions of €uros on derivatives contracts (created in initially inducting itself into the €uro) that were then later restructured at the height of the EuroZone crisis…

Meanwhile on the Isles, revisions to economic data are indicative of the UK now being in deeper recession than as was initially measured, with forecasts for further gloom ahead.

And thus at the end of the day, be it Across the Pond, StateSide, or even along the Pacific Rim, ‘tis more of the same, which in turn means more money must be milled, magically made manifest through the simplicity of offsetting accounting entries: debit printing press / credit debt proceeds. ‘Tis so easy. (Just don’t tell the children).

Here’s Gold’s trading profile encompassing the last two weeks, the current 1235 price per the red bar:

We’ve got support apices, we’ve got resistance apices, we’ve got much over which to go ape! And don’t become trading complacent given our StateSide mid-week holiday that celebrates our once had Independence: there are no less than 19 items of incoming economic data, not the least of which is the jobs data to be reported early Friday morning whilst many are dreading having had that extra tumbler or two of bourbon and branch water during Thursday night’s fireworks display. The market never sleeps.

Last but hardly least, a tip of the cap to Keith Weiner, (President of the Scottsdale, AZ-based Gold Standard Institute USA), who kindly took the time to write me that, per his piece over at AZ Central.com, Governor Brewer’s vetoing the State’s bill that would have exempted Gold and Silver from being taxed when sold, has therefore made their use as currency essentially prohibitive. Sadly thus, our maverick desert friends, as are we, remain stuck with these: