Gold Recoups 7 Days Of Loss In 7 Minutes
Mark Mead Baillie | Jun 05, 2016 08:27AM ET
In settling out the week yesterday (Friday) at 1247, gold reminded us of how swiftly it can move by soaring 22 points over a seven-minute stretch -- from 1216 at 05:30 Pacific Time to 1238 at 05:37 -- following the Bureau of Labor Statistics report of just 38,000 Stateside payrolls having been created during May. Extrapolate that arithmetic pace at which price rose over those seven minutes, and Gold's All-Time High (1923) would have been eclipsed three hours thirty-nine minutes later at 09:16 yesterday. Oh yes really. Here's the thrust:
Any way you time-slice it, gold entered Friday being traded sub-1238 for the seventh consecutive trading day until that seven-minute rocket-shot, which was further enhanced over the remainder of the session, the 1247 settle being almost the highest of the past two weeks (since 1249 on Monday, 23 May). So in below viewing gold's weekly bars from one year ago-to-date, take note one week ago the closing price distance under its parabolic Short dot was 90 points; by the rightmost bar, that's now been slashed to 49 points. As for the purple-bounded 1240-1280 resistance zone, 'tis better to be back up in it rather than below it:
'Course by now as has been broadcast ad nausea, you know that May's payrolls pop was at best a flop, those labouring over at Labor likely having painfully bent over backward to come up with some kind of positive number. But at best, the gain of 38,000 payrolls for the month was:
■ the weakest since that for August 2011, the month prior to Gold's All-Time High;
■ the weakest for any month of May since 2009, during the aftermath of The Black Swan; and
■ the largest month-over-month growth drop (85,000 lower) since this past January.
We find that latter bullet of particular interest, for 'twas during the prior month in December that the Federal Open Market Committee raised its FedFunds target rate to 0.50%. You can just hear those CFOs out there: "Up with our interest expense? Down with our hiring!" But wait, there's actually some good news: May's 0.3% reduction in the Unemployment Rate from 5.0% to 4.7% was the best month-over-month improvement since April of 2014. Amazing, eh? On payroll creation of a mere 38,000? That's my kinda leverage!
Get The News You Want
"No mmb, they're not counting the 94 million people who are not looking for work..."
Thought I could catch you there, Squire, but yer just gettin' too good these days. Indeed: why work when there's welfare? Life is good. And speaking of good, such has been the stance of the rising Economic Barometer of late, albeit it did have had a hiccup over the past week or so. For in addition to the sag in payrolls growth, we saw slippage in each of: the Chicago Purchasing Managers Institute's manufacturing indicator, the Institute for Supply Management's services indicator, the Conference Board's measure of consumer confidence, the University of Michigan's consumer sentiment survey, and in Construction Spending. Here's the Econ Baro:
And with respect to the FOMC's pending 15 June policy statement, you'll recall our notion from last week's missive -- given the steep rise of late in the Baro -- 'tis the opportunity for the voting members to more pro-actively assert themselves and go for nudging the FedFunds target rate up to 0.75%. But because they perennially emphasize "jobs" creation, this May "payrolls" creation could well again give them pause. Plus, there still remain 17 inputs for the Baro between now and this next FOMC announcement. En route to that is Chair Yellen's engagement this Monday, 06 June at the World Affairs Council of Philadelphia, after which she is to meet in a roundtable discussion that includes Philly Phed President Pat Harker and the West Philadelphia Skills Initiative; (no word as yet if skills to be discussed shall cover the culinary crafting of a Philly cheesesteak).
Meanwhile behind its darkening worldwide veil, the Organization for Economic Cooperation and Development warned of the global economy sliding into a “low-growth trap” resulting from all the free-flowing monetary stimulus policies put into place over recent years. No argument here, for as we pointedly presented a week ago, the S&P 500 has risen to unconscionable levels given the lack of earnings support: now that's a massive “low-growth trap”. Still, from our "What Makes A Market Dept.", we've got gurus Gartman vs. Gundlach, the former suggesting that market shorts need run for cover, whilst the latter says that stocks are "dead money". Then over at Bank of America (NYSE:BAC), Mike Hartnett sees a "lose-lose" summer for risk assets. But have we not become conditioned that the StateSide stock market, rather than being a risk asset, has become the Great American Savings Account? What are we missing?
Missing from most folks' portfolios is the under-owned wealth asset known as gold. Contrarily, oh it has its hopeful herks and jerks as we just saw yesterday. But over the last month, (21 trading days), wouldn't you rather have been in the green than in gold?
Further, gold as below charted by the day since its All-Time High five years ago has been nothing short of ghastly. Why, the four criteria as to "how we'll know when the bottom is in" (vis-à-vis last 03 December's low of 1045) still have yet to be met. Again, they are:
■ The weekly parabolic trend ought be Long ('tisn't)
■ Price ought be above the 300-day moving average ('tis)
■ The 300-day moving average itself ought be rising ('tis)
■ Price ought trade at least one full week clear above 1280 (hasn't)
Fortunately, history has proven to us that regression to the mean ultimately "wills out" and from as far back as 1980, (using the money supply data provided by the Federal Reserve Bank of St. Louis), the price of gold naturally has risen in tandem as the currency has been debased -- at least until 2011. Thus the bad news as you know is, since then, the more dollars there are, the less gold has been valued. 'Course the good news is, upon the correlation inevitably returning to normal, gold to simply catch up to debasement puts price today (per our opening scoreboard) at 2589. (And as we're wont to say, that's not accounting for overshoot). So halve the S&P to get it in line with earnings, double the price of gold to get it in line with currency debasement, and we'll simply have returned to the quietly elegant state of being in sync. Fun, eh?
Keeping with the gold vs. S&P theme, let's next pair them up by their daily bars for the last three months-to-date along with the "Baby Blues". (Note: silver had a fine day yesterday as did gold, the white metal also eradicating a week's worth of damage; you can see all of Sister Silver's like charts per her link on the website). As below for gold on the left, that rightmost mega-bar is Friday, sufficiently powerful to curl the blue dots upward as the 21-day linear regression downtrend begins to lose its consistency. And for the S&P on the right, although the dots continue to ascend, price's daily recovery of late from its intra-day depths continues to stall out 'round 2100:
Now to the 10-day Market Profiles (contract volume traded per price point) of these two mighty markets. And for gold (left), should price again give way below the 1240-1280 resistance zone, we'd look for that clustering from 1232-1223 to hold the line. As for the S&P (right), clearly 2088 is the key near-term price to hold, else price faces dropping through the first gap to 2071, and failing there, down through the second gap to 2050:
Fundamentally, one ought think the yellow-brick road on balance winds upward for gold, certainly so over the medium-term. There is, as noted, gold's stark dislocation in being undervalued given the diabolical levels of faux-dough, debt and derivatives 'round the globe. But more so over these ensuing weeks we've two murky matters, the first of course being that of Fed policy. The second is that of "Brexit", (which for you WestPalmBeachers down there is neither a shampoo nor laxative, but rather the potential withdrawal of the United Kingdom from the European Union). To wit:
Right through 23 June when Britain's citizenry vote, presence of the word "Brexit" shall increase geometrically in what we read and hear. At this writing, Ladbrokes (LON:LAD)' "stay" wagering line is odds-on paying one-for-three, whilst over at Sky Bet, the "leave" line is paying five-to-two. Moreover, were the latter to actually come through, we'll hear of nothing but "Brexit" for months on end. (One further wonders should the U.K. then falter, who shall come to its rescue with "Annexit").
Either way as regards the overall uncertainty surrounding both the Fed and "Brexit", these two seemingly mutually-exclusive events are already garnering FinMedia mélange, the FinTimes running this past week with "Brexit fears loom large on Fed meeting" (What?) The point is: such murkiness ought redound very well for gold through here, indeed as we just saw with its most recent rebound. And as we hasten to point out from time-to-time, from 2004-2006 as the Fed Funds rate rose from 1% to 5%, the price of gold increased 59% (from 402 to 639), a fact neglected by the negative nattering nabobs.
Finally for you valued readers over there in lovely Lugano, the opening of the new Gotthard base rail tunnel now reduces the train travel in making your gold purchases up in Zürich by some 45 minutes each way. Think of it: you're now saving both time and against currency debasement. Oh those Swiss!
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