This Week: Gold's First Big Test In 2014
Mark Mead Baillie | Apr 14, 2014 03:50AM ET
A week ago we demonstrated how Gold year-to-date has tracked practically in mirror image to its chillingly chartered course of 2013. Should such inverse correlation continue, Gold would prosper en route to recording quite a fabulous year of recovery. But by the calendar, we're now at least seasonally sensitive to that which occurred right at this time one year ago: from its high price during the 11 April 2013 session of 1568, Gold through StateSide Tax Day dropped like a stone to trade on 16 April 2013 as low as 1322, a decline of 246 points or -16% across a mere four trading sessions.
Today, given that the ensuing week 1) marks the anniversary of that plunge; 2) is but four trading sessions in length inclusive of Tax Day; and 3) arrives within the context of price curling back up within the current correction, we're marking this next week as Gold's first big test for 2014, a milestone moment of truth to be weathered.
Such arguably sensationalized seasonality aside, there is further buoyant news for Gold. On Thursday, the BEGOS "Market Rhythms" analytics fired off a terrific combination of common sense trading signals -- albeit near-term but so significantly compelling -- they may well be heralding a material sea-change as having finally appeared on major markets' horizons. In just the final two hours of Thursday's trading, the Rhythms confirmed getting Long Gold, Long the Swiss Franc, Long the Bond, Long Silver -- and Short the S&P. Wow! Whilst we're not herein formally allowed to "recommend" such trades, we're instead simply pointing out the quintessentially classic flight to safety indicative of these signals.
So we'll get straight away to our technical views of both Gold and the S&P, but first: with specific respect to the value of Gold (as money) versus that of PIIGS Paper (as risk) -- and as compelled by our many veteran readers' interest in keeping abreast of the following sporadic saga -- let us recall our tourist friend who back in June 2011 purchased a high-interest Grecian Bond, and then in order to redeem it, made three trips to a booth in a hot dusty bazaar beneath the Acropolis, only to receive back 50% of his invested principal, along with a token plastic bust of Homer and a 100-ballot packet for stuffing the local election box.
Thus with our microphones being everywhere, we've yet again picked up our tourist friend in a fourth and doubtless final attempt to retrieve the remaining 50% of his Bond principal. And this time behind the booth's counter, rather than the presence of the Dealer himself who'd taken the original Bond proceeds to California to buy a Chevron station franchise, nor the Dealer's super-sized giant of a son who'd in turn followed his father to the States, nor the Dealer's wife who we last saw adorned in a tight Peloponnesian wrap, this time our man faces the Dealer's daughter, Erevgmós, below the banner reading (drum-roll...)
Get The News You Want
Tourist: “I've come once again for my remaining €500 principal, plus that ~ton~ of interest you owe me, on the Bond I bought here.”
Erevgmós: “Oh dear. Mother did warn me about you.”
Tourist "Oh, so you're the Dealer's daughter, eh? Well, I have it on good authority that you guys now got the dough. So I'll take back my slice right now, if you don't mind.”
Erevgmós: “What makes you think we have money?”
Tourist: “I read the papers, lady. You guys just had yer first Bond auction in like four years and it was oversubscribed by eight times! So you can pay me back right now!”
Erevgmós: “We don't make old Bond redemptions here. You must leave, else I'll call for help” (Reaches below counter for secret buzzer).
Tourist: “You can forget the threat, lady. I know that your gargantuan eight-foot-tall brother also moved to the States. So fork over my dough.”
Erevgmós: “Yes, we are very proud of Little Andros. He was in the March Madness. It was on télévision.”
Tourist: “Oh yeah? Well he can't mess with me from over there. Besides, those tall guys have their vulnerabilities to low punches. I can take him out. Pay me, baby!”
(An impossibly large shadow suddenly looms from far back in the draped darkness of the booth...)
Erevgmós: “Look mister, it's only fair to warn you: it's Spring Break...”
Tourist: ”Oh... my... god...”
(Runs like hell, losing himself in the bazaar)
Little Andros: “Hey Erev, who was that?”
Erevgmós: "Oh just some foolish American boy tourist. Papa had sold him a Bond before the price collapsed."
Little Andros: “Did you offer him one of the new Bonds?”
Erevgmós: "No. We're only accepting payment in Gold, and as do almost all Americans, he did not look like the type who would have any."
Little Andros: “Nice. Hey: want some of this Texas bar-b-que I brought back from Dallas?”
Erevgmós: "I doubt we can sell it, so... I'll get the ouzo."
The moral of the story, as that's likely the last we'll see of our tourist friend, is that Gold is Money. To be sure, instead of having lost 50% on his bond purchase from back in June 2011, today he'd only be down 12% had he purchased Gold at that time. 'Course, had he instead bought the S&P, today he'd be up 38% -- but we know how most folks are with equities: they tend to hang on throughout it all going wrong. Rather, 'tis Gold onto which one ought hang, whilst accumulating more on the cheap.
Speaking of the stock market, with this first chart as presented a week ago, we've now updated its display of the S&P futures, (daily bars during "real time hours"), to include the last five days:
The S&P in some respect is beginning to appear as does a snake in its death-throes. And yes, that pesky price oscillator study (blue bars below) on the S&P's daily chart year-to-date has confirmed turning negative:
The FinMedia seem to be making quite a fuss over this spate of stock market selling. I saw whilst breezing past the infamous "Drudge" yesterday (Friday) the main headline reading "Stocks Continue Collapse". Elsewhere 'round the web 'twas written: "Stocks extend their decline ... The losing streak is the longest in two months". I have a question: what if it extends for two quarters? What if for two years??
How complacently soft 'tis become out there: a 4% pullback is now termed as a "collapse". I recall back in '87 a single day wherein the S&P dropped 20%. I doubt a descriptive noun even exists were that to recur today, (albeit we remain on "crash-watch"). But from our perspective, this wee pullback is a mere pockmark on the face of a terribly bloated market. Indeed we're now hearing prognostications, for example from Merrill Lynch, for a correction of up to 15%. That'd put the S&P at 1607. Still too rich for my blood, for as we herein recently noted, were the S&P to halve itself and our "live" p/e remain linear, 'twould still be around 15x. Just sayin'...
Simply consider this: the world's great liquid markets, such as those which we purposefully follow that comprise BEGOS (Bond/Euro/Gold/Oil/S&P), are never wrong. But in the broadest-based nutshell: traditionally stocks are purchased in anticipation of earnings growth and as a hedge against inflation; traditionally Gold is purchased as the mitigant to the flourishing debasement of currencies. Today's trading paradigm seems entirely askew of those time-honoured tenants; but their being righted remains in the balance. Else our financing and monetary mechanisms will be blown to bits. (Got Gold?)
Indeed, now to Gold, and with respect to its 1290-1275 support area, as 'twas written a week ago: "...This is the second time in 2014 that this area has seen significantly supportive high trading volume, such that should Gold again hold 'round here and then move well back up through the 1300s, the recent correction in retrospect shall already have ended..." Gold settled out another up week yesterday at 1318. Yet, 'tis still a bit early to declare the current correction as over, at least given the "seasonal test" now awaiting Gold as described at the outset . Still, price thus far is nicely in defiance of the new weekly parabolic Short trend, (note at this chart's far left the aforementioned fallout at this time a year ago):
Indeed should Gold still be above 1300 a week from now, one might well opine that the low for the year (1203) is in place and that, more importantly, the correction has run its course. To be sure, this next graphic is gaining quite the positive bent. The smooth pearly valuation line represents the relative price movement of the BEGOS markets regressed into that for Gold, itself nearing upside penetration of the smooth line, which is in turn regarded as a trading buy:
Now let's assess a couple of two-panel displays. In this first one we've on the left Gold's last three months astride its Magnet, from which by definition price cannot stray too far. Gold appears perhaps momentarily "high" above its magnet, such that price might retrench a tad before moving higher still. But on the right we see something quite similar to that which still remains the case for Silver: Gold's expected daily trading range ("EDTR") has reached a year-over-year low of just 15 points/day, a welcome, quiet respite to the wide-ranging pounding of which price suffered a year ago, (I know, perhaps too "quiet" for you "instant gratification" types out there):
Next in this second two-panel display on the left we've the ever-popular "Baby Blues" along with Gold's daily bars for the last three months. Within the guise of the current correction, we'd already seen price beginning to curl back upward a week ago; the rising blue dots, which still being below the 0% horizontal axis determine the 21-day linear regression trend as negative are nonetheless indicative of that downtrend's consistency now beginning to fall apart as price rises, ideally leading toward a new uptrend. And on the right we've the 10-day trading profile for Gold with all those resistive apices now morphing into being supportive -- at least, that's the theory, and moreover under day-trading conditions, they work quite marvelously in producing market hesitation and price reversal levels-- yet at the end of the day as we oft say: were support and resistance to always work, the market would never go anywhere. But again note the lengthiest bars in the bunch remain in that sub-1300 area and that's the zone we do not wish to see Gold materially violate. Stay above that 1290-1275 support and price might then well be en route to our 1466 notion (The bottom of "The Floor") by mid-year:
Now: Apropos of being mentioned in this missive's third paragraph, the Long signal for Gold that was confirmed on Thursday is depicted in our final graphic. 'Tis the classic MACD (moving average convergence divergence) study for Gold's daily bars. When the MACD is positively disposed, the daily price bars are green, else red if negatively so. Notice that the most recent trading day (Friday) is green. That session's opening price was 1318. The Market Rhythm analysis for the study suggests an 80% probability of Gold reaching 1342 prior to the MACD's next return to the negative side of the ledger. More aggressively, the "average maximum" follow-though of travel per this study would put price at 1380, (just in case you're scoring at home):
In closing, and in bidding adieu to our tourist friend in Greece, we now see that S&P has cut its outlook on Finland's credit rating to "negative" due to "continuing economic problems". I honestly don't give much thought to Finland. Other than its gift to Formula One of fabulous racing car drivers, 'tis just sort of way up there. Now nearing its 100th anniversary of independence, and having been declared some years ago by a news publication as "the best country in the world", we wish our Finnish friends well. (And don't allow any insurgents to get their hands on your Gold: repatriate and insulate!)
Again, the ensuing brief week is key for Gold to hold and is rife with incoming economic data. Stay tuned
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.