Where Gold Stands As Its Range Expands
Mark Mead Baillie | Jul 21, 2014 12:58AM ET
One week ago with Gold then at 1340 and in writing that Saturday of price's route to 1400 first traveling lower to 1300, we certainly didn't expect such initial leg of the journey to occur in immediate straight-line expediency -- which it did straightaway -- trading down to 1302 on Monday before our StateSide equity markets had even opened. (And 'tis hardly the power of this pen that made it so, else we'd be at 1400 now, if not 2000, non?) Gold then went on to dawdle about in the uppermost 1200s before righting itself to close out the week at 1311.
As to where price would instead be -- to the extent the tragedy over Ukraine had not occurred nor the ground move into Gaza nor even the Fed's acknowledging substantially stretched valuations in certain equities sectors -- on the heels of that written a week ago, right about here at 1311 seems just fine. But 'tis the change in the range of Gold's daily price swings that we're noticing, for volatility, event-driven as well as technically-so, is increasing. So, this first graphic below depicts Gold's "expected daily trading range" year-over-year to date. Updated after each session, this weighted-average calculation is currently the 17.8 figure in the box, representing the trading range we'd "expect" to see for Monday between Gold's low and high. Summer doldrums defied; volatility defined:
Of course, in the midst of it all, we've now Goldman Sachs' reiteration for Gold's reaching down to 1050 by year-end, the ginning up of such expectation in turn generating e-mail from our valued readership as to if the very aptly nicknamed Golden Slacks will be correct. For as sayeth the Sybil: "That which Goldman prophesizes must surely be self-fulfilled". So in replying, we incorporated the following:
"I remember writing some two/three years ago that, were price to reach even down to these current levels, ours would be a dark, deflation-depressed world, which it does not appear to be as instead we enjoy life on the surface of the great bubble. Gold has become so under-owned that its price is purely subjective to the whims of traders, hedge funds, and banks both private and central. And Gold’s price is the truth regardless of how illogically out of sync it has become with monetary reality. Therefore 1050 could conceivably trade; so could 500; so will 2000 upon the urge to own it."
Let's extrapolate that a bit further. What is the point, let alone the rationale, for putting Gold down to 1050? It does not require the experience of a futures trader to understand how risky 'tis to sell something one does not own, (albeit to the extent that Goldman has bars of Gold secretly stacked in the stairwells of 200 West Street such as to fulfill any futures' delivery obligations, one can only speculate).
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Save for the Chinas, Indias and other Gold Story Understanders of the world, the yellow metal is, as noted, quite astonishingly under-owned. As you've seen from time-to-time, we'll herein display the correlation of price to the rising levels of foundationless faux dough, arguably suggesting Gold ought today be well the other way, (by our measuring certainly in the 1800-to-2000 area). 'Course ten years ago, Apple was two bucks a share; then came everybody's urge to own it -- for good reason -- and today 'tis just shy of $100/share. Similarly, everybody's Golden light bulb will eventually be forced on -- for good reason -- in turn with the perceived need, if not outright urge across the herd's surge, to own Gold. (If 'twasn't coming, I wouldn't be writing).
Obviously this is the "not if but when" assessment, the "when" waiting in the wings. For it doesn't take more than a casual glance across various Gold sites' headlines to see the bias building for an absolute stock market implosion accompanied by far higher Gold prices. Indeed, the increasing poppings up of pieces for such an outcome are like those of flash bulbs upon a starlet's arriving at Cannes' Palais des Festivals, (Golden slacks optional), as we slip into Gold's weekly bars and support of the new parabolic Long trend:
So to this point en route to 1400, we've quick as a wit had the anticipated pullback into 1300. Recall a week ago that technically Gold had reached a typical extreme above its BEGOS valuation, (wherein we measure price's movements relative to those within the Bond/Euro/Gold/Oil/S&P markets complex). Now a week hence, in viewing the following two-panel graphic, on the left we've Gold's daily closes for the last three months and the smooth pearly valuation line; the levels from last week are noted by the purple arrows and again you can see per the oscillator (price less valuation) at the foot of the panel just how high (50 points) Gold had reached above the smooth line; now that relationship is more in sync. As for the panel on the right, we've the identical three-month price track, but in this case 'tis astride Gold's Market Magnet, (the overall 10-day contract volume-weighted price drawn from the data that makes Gold's Market Profile at which we'll later look); for the moment, price is in sync with its magnet. The point is: Gold is now fairly in equilibrium with both of these measures, despite the increasing "expected daily trading range" that we saw earlier, and moreover, within the guise of the parabolic Long trend at which we just looked.
Recall as well that part-in-parcel for retrenchment of Gold's price into 1300 before ascending to 1400 was the rolling over of the "Baby Blues" that measure 21-day linear regression trend consistency. Having depicted the dots already descending in both of the prior two weeks' missives, here again is their current stance across the last 21 days for Gold and Sister Silver, the respective diagonal regression lines all but flat:
As for Gold's last 21 days vis-à-vis the "can't go down 'til 2000 is tapped" S&P, one might glean within these percentage tracks their returning toward negative correlation to one another:
"And mmb, the website says the S&P p/e is now 33.0x... whaddya say to that?"
Honestly, Squire, we've exhausted the entirety of the vernacular's adjectives by which to describe the inanity of it all. My only counsel is that if one is equities-exposed when it all goes wrong, keep a grip on your Gold and otherwise practice safe specs.
Speaking of which, Gold's Market Profile is indicative of safety in numbers, the current 1311 level as the white bar therein. One might liken this current profile to a team in the Tour de France as they surround and protect their leader en route in an alpine climb to victory:
Let's therefore look for Gold's road from here to level out and then resume upward. Should the support afforded in the Market Profile hold firm, within the context of the new parabolic Long trend and expanding daily trading range, 1400 remains not that lofty a goal from here.
Finally, with respect to money and Gold's essentially being its rarest form, what used to seem like a lot of currency units simply doesn't anymore. To wit:
What's in a million? Time was when we viewed that as a terrifique amount of money. Why, it even led to the coining of the word "millionaire", once so rare. Nowadays, if you don't have that million, you may end up without that proverbial pot...
What's in a billion? 'Twas reported that Citi has agreed to pay $7 billion in settling its misdeeds with regards to having sold mortgage-backed securities during the '08 CrisisGate. But when you've got $1.8 trillion in assets, a bil here and a bil there is chump change. So...
What's in a trillion? Turn simply to marvelous Mario Draghi as his European Central Bank stands ready to deliver $1 trillion of cheap funding into the EuroZone's banking community. Here: have a Citibank or two. Which can only leave us with...
What's in a sausage? This you may not really care to know -- but equally as important as is money -- is eating. And now we read that in the wake of Germany having won the World Cup, the nation's leading sausage makers are being seasoned with a €338 million fine. Seems that price collusion over what you've been shelling out for your stippgrütze has been gestoppt. And like Gold, das ist gut!
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