Gold Is Just A Metal

Good gracious how perceptions have changed as churned by the tide of our culture's continuing devolution. The following is straight from the "Just When You Thought You'd Heard It All Dept."

This past week, upon my sauntering through the club bar to pour a café ahead of doing some honest work, a spritely young professional with whom I am acquainted queried: "How's gold?" I replied: "Well, 'tis been struggling a bit, but considering 'twill trade in excess of $2,000, 'tis a heckova buy down here at $1,100". The response: "Really?" My cheerfully confident answer: "Absolutely!" Then came the pregnant question: "But isn't gold just a metal?"

Prone to being excessively wordy at times, rarely am I known to be speechless. But that one stunned me. Is this to where we've come? Gold is "just a metal"? With all respect due the person, that question is quintessentially exemplary of the socially dumbed-down assumptions about gold that have seemingly pervaded even the highest levels of fiduciary responsibility, making them quite honestly appear "stuck on stoopid". To be sure, money managers must be on the right side of trends, Gold's having clearly been down since 2011, whilst the S&P 500 has better than tripled since 2009. But were I running clients' portfolios stuffed chock-full of stocks, given our "live" calculation of the S&P 500's price/earnings ratio is now at 35.2x, I doubt I could face the mirror in the morning, let alone the day, (and when it all goes wrong, hardly the clientele). But counter the low S&P earnings with the seven-fold increase in Fed Faux Dough since the early 1980s, and rationally, gold right now ought have its price swapped with the level of the S&P: 1095 2104. Fortunately (or otherwise?) from the "For The Sake Of Sanity Dept.", reversion to the mean shall supervene. And then, luv, 'twill be all about the overshoot.

Meanwhile back at the bar, as the whiff of vapours from the café restored my senses, I smiled and put forth to my acquaintance: "Gold is money, as it has been for 5,000 years", and excused myself toward moving on with all due dispatch.

Hardly being further dispatched downward this past week was gold, which on a points basis put in its third narrowest trading range since late August of last year, the rightmost of the weekly bars below quite stubby given the week's FedSpeak (or rather NonSpeak), an unsurprising GDP reading for Q2, all within a bit of summer malaise. Still, stretching to put a positive bow on the week, 'twas just the third of the last ten to sport a higher low:

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"'Stretch' is an understatement, mmb..."

Sadly, Squire, what's really been stretched are the year-over-year percentage tracks notably of the ARCA Gold BUGS and Goldcorp Inc (NYSE:GG). And thus it being month-end, here are said tracks along with those for Newmont Mining (NYSE:NEM), Royal Gold Inc (NASDAQ:RGLD) and gold itself, the latter clearly off the least of the bunch at -15%:

Indeed, a -15% year-over-year run for gold is one thing; a -15% month-over-month run for the Shanghai Composite Index is quite another. And the International Monetary Fund has a reserve currency bid from China to formally -- as of this autumn -- include the yuan?

From Yuan to Yawn as we next turn to the Economic Barometer, with which the hesitancy from the FOMC would seem to agree...

...to later whirl right back 'round to QE? Those who are prudent say that's what we'll see, in turn righting gold on an upside spree. But given our gold structure's "pot-pourri", its aroma at large remains fairly "stenchie":

All right: 'tis enough negativity as regards gold for this week's missive, (let alone that for a lifetime). Now let's move on to something that portends some positivity for the precious metals. Below in the two-panel chart for gold, we've on the left the last three months of daily bars: look at the recent price consolidation therein, essentially spanning the last two weeks; note, too, that the "Baby Blues" are just now barely beginning to bend up, meaning that the consistency of the 21-day linear regression downtrend is beginning to wane. Then on the right in the Market Profile, with gold's settling Friday at 1095 (white bar), 'twas also at the most commonly traded price of the last two weeks. Oh we've had time-and-again ad nausea suggestions that "the selling has stopped" and the final one ought be the best buying opportunity for gold in the lives of many a doubting soul out there, (would be that this is it!):

And here next is the same data set for Sister Silver. And looky there: her "Baby Blues" (left) are even more clearly curling higher, plus she settled yesterday to the nearest 10¢ at 14.80, which is above the mid-point of her Market Profile (right):

In sum, the precious metals per these last two graphics are in at least a near-term technical setup to regain some modicum of ground. And given there are 17 data inputs in the new week hitting the aforeshown Econ Baro, weakness therein may provide some catalytic "umph". Goodness knows gold needs it!

We'll wrap it with this: on 01 August it was Swiss National Day, (and descending upon us here at the Residence were five "family" members just in from the Swiss Canton of Bern, via Las Vegas, their thus likely becoming frozen stiff given our icy summertime San Francisco fog). But our festivities do come with a bit of a damper, given the Bern-based Schweizerische Nationalbank having just reported a significant CHF 50 billion first-half loss for 2015, largely stemming from removing their Swiss franc's soft peg to the euro. That said, the SNB's ace up its sleeve is its gold reserves. Of the world's 251 nations, Switzerland by area may only rank 135th, but by the World Gold Council's July 2015 rankings, the wee alpine nation's central bank ranks 8th globally in gold holdings (1,040 tonnes). A gold recovery to 2000+ comprehensively would mitigate that loss. Don't go tellin' the SNB that "gold is just a metal"!

Written By: Mark Mead Baillie