Gold: The Route To 1400
Mark Mead Baillie | Jul 14, 2014 12:49AM ET
Gold closed out this week yesterday (Friday) at 1340, its highest weekly settle since mid-March. Inherit in the missive of a week ago were descriptions of Gold having commenced a fresh uptrend as measured by the parabolics on the weekly bars, plus having moved into First Place as the best gaining BEGOS market year-to-date (which it still is, now +11.2%). Further, we reinforced per a prior Market Rhythm analysis on Gold's daily Price Oscillator study an odds-on upside target during this run of 1384; which in turn with just another nine points would bring a year's new high at 1393; which again in turn by just another seven points would claim the century mark of 1400, (or as the venerable trader Art Cashin might put it: "If it gets to 90 its going to 100").
Such mouthful of measurings in mind, it remains practical that first a re-test of the lower 1300s wouldn't be at all untoward as we again present the dual panel below depicting the "Baby Blues" still, as we saw a week ago, rolling over for Gold as well as for Silver, (daily bars for the past three months):
As regular readers have come to know, the Baby Blues measure the consistency of price's 21-day linear regression trend, such mild rolling over meaning that trend, whilst still clearly up, has become just the slightest bit sloppy. Not to split hairs, but generally a break by the Blues below their +80% level oft lends itself to lower prices. We remain firm in anticipating a run during this positive parabolic uptrend (at which we'll view in a few moments) through those specified upper 1300s, if not to 1400 itself. However, the memo from the "Nothing but the S&P Moves Up in a Straight Line Dept." suggests a route for Gold from here at 1340 initially down toward 1300 and then up to 1400. (In fact amidst this week's e-mail traffic came some dubious concern about targeting that upside area, to which I replied the 1400 level is peanuts given our eventual expectations of 2000+). But as Mum would remind on occasion, "Don't eat it all at once." For when it comes to the yellow metal: be fortunate by its flow, enduring in its ebb, and one shall weave quite the golden web. Talk about a safety net -- put that in your Fibonacci:
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Indeed with respect to targeting 1400, the oft-considered infamous Peter Schiff was quoted this past week as: “There is still a lot of skepticism in the market, but once we see gold go above $1,400, we will see more buyers come out ... the fear of gold going to $1,000 will be replaced by ‘I don’t want to miss out’."
Now I finally know who that fly is that's been strutting about the cookie crumbs on our Investors Roundtable. Or, if you will lyrically:
"You took the words right out of my mouth..."
--(Meat Loaf, '77). Either way Sir Peter, with the fresh parabolic Long trend having begun, a move within its duration up to our perceived 1400 level would be some +4% from here, or another third or so from where Gold has come year-to-date:
And speaking of year-to-date, we next put the magnifying glass on Gold vis-à-vis its 300-day moving average, the once enduring and likely again future stalwart supporter of price as global money supplies and populations increase well beyond the rate at which Gold is discovered and mined. And they said it couldn't be done:
One does wonder, where are they now? Once short, twice broke. (And still so much more to soar).
Still, in the realistic vein that nothing, save for the S&P, goes straight up, let's now turn to the full year-over-year view of Gold and its smooth, pearly valuation line, (a regressing of Gold's price movements to those of the primary BEGOS markets: Bond/Euro/Gold/Oil/S&P). The present proximity of price to valuation is visibly high, especially per the oscillator (price less valuation) at the foot of the graphic. And yet the good news is not only that Gold's trend is up, (despite the Baby Blues shown earlier as curling over at bit), but that the smooth valuation line itself is now also turning up. So again, first a little pullback appears in order, and then on toward 1400:
Arguably, the current state of Gold's 10-day Market Profile belies the notion of price even reaching down to the lower 1300s. From the present level of 1340 (the red bar), Gold would have to engage quite the largest of drill bits to break up those two bulwarks of underlying trading support, the bulk of contract volume over the past two weeks having been maximized at the noted apices of 1327 and 1320:
'Course as we herein on occasion remind, were support and resistance to always contain price, we'd never go anywhere, (which for you WestPalmBeachers down there means you'd never get out of Kansas).
Nonetheless, or as sayeth the legal beagle "the foregoing notwithstanding", let's press on to Gold's structure as described by its daily bars within our broad-based sector monikers since the All-Time High of 1923 back in September 2011. Clearly, Gold still is rummaging 'round in the basement, having failed to reach our 1466 mid-year target at the bottom of The Floor, but you can see price's "positivity" beginning to build:
Toward wrapping it up, as for Gold vis-à-vis the S&P, here's what we see, (percentage tracks from one month ago-to-date), their negative correlation not as acute as noted in recent months:
In fact for the S&P and stock market at large, Q2 Earnings Season is underway. And 'tis rightly a bit worrisome. Recall a week ago our notion for the S&P to tap 2000 this past week? It didn't happen, albeit here at 1967 and given an EDTR ("expected daily trading range") of 12 points, the S&P level of 2000 is well within several days' reach, should traders be so disposed to go for it. But here's the scary bit: the S&P is down from its level a week ago of 1985 when our "live" price-to-earnings ratio was 32.0x. To be sure, only a wee smattering of S&P 500 earnings have thus far been reported; however despite the lower S&P level, our "live" p/e is actually now higher at 32.6x. Indeed a FinMedia headline during the week read: "Investors unloaded stocks for a second straight day ahead of a slew of corporate earnings that will help them determine whether a recent run-up in the market is justified." Methinks that answer is staring them right in their determinative faces. Moreover, the Raymond James firm put forth that equities are "vulnerable", whilst Citi cited investor concerns for a "severe" pullback. Given our ongoing concern from some 400 S&P points (and light years) ago, we see a wallapalooza of a washout a-waitin' out there.
"Looks like mmb's still on crash watch..."
And as stated in the past Squire, so we shall remain until either the crash runs its course or earnings miraculously double whilst prices remain static. But there's good news for the complacency crowd per this gonzo headline: "Don't sell your stocks - With the Dow soaring above 17,000 last week, are you thinking it's time to take the money and run? Analysts say not so fast." I say have a nice day.
Finally, there's this which is in sympathy with my own selfish desire to see the €uro somewhat expire, or at least become less dire for us StateSiders. Airbus' CEO Fabrice "The Fabulous" Brégier has called upon the European Central Bank to intervene toward reining in (in his words) "the crazy €uro" such as to reduce its Dollar value to the low $1.20s, ('tis $1.36 at this writing). That'd be a great start, Fab, our far-stronger preference being for something lower still to around 80¢ as 'twas back in '01. "But wouldn't that work terribly against Gold", you ask? C'mon, folks: you've been around The Gold Update long enough to know as we herein portray, at the end of the day, no currency favourites does Gold play! Why they're already overflowin' the dustbin!
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