Gold’s Fits and Starts in Finding a Floor

Mark Mead Baillie

Having adopted a more bullish tone in recent weeks, we can finally begin with some pleasing news: gold recorded an up week.

“Well, it really wasn’t much of a big deal, mmb… ”

True enough, Squire. Even so, through the year’s 29 trading weeks, gold has now posted only its fourth positive week in the last 14: “Happy days are here again…” –-[Milton Ager & Jack (not Janet) Yellen, ’29].

Gold settled this past Friday at 4056 after a sharp advance from Monday through Wednesday, when it was at one point up 3.7% to 4171. We will gladly accept the week’s net gain of 0.8% after the recent fits and starts — dare we say “derring-do” — that gold has endured.

Gold has also, serendipitously or otherwise, been fostering friendship with Fair Value.

“That’s ’cause you’ve been pointing it out a lot, mmb… ”

Squire, we appreciate the supportive comment. Either way, Fair Value remains our favored — albeit the most particularly ponderous — measure for assessing reasonable gold valuation. To be sure, Fair Value will lag the actual price of gold once the Federal Reserve has to bail out both the U.S. Treasury’s debt and fund investment banking coffers, thereby avoiding your receiving an I.O.U. instead of cash when selling your stock, given that the ratio of the S&P 500’s market capitalization to liquid money supply is now 2.8x, according to the opening Scoreboard. Five-figure gold remains in the offing, as we have previously foreseen.

The appeal of Fair Value, barring a deflationary depression and a sapping or reinvention of the money supply, is that it rises over the long haul. Since President Nixon ended the Gold Standard on 15 August 1971, gold has usually trailed Fair Value, only to dramatically catch up — and then some — after gold last year “morphed into a meme stock” as the trading herd changed the yellow metal’s status from “Relic” to “Must have it!”

We continue to regard gold as an attractive, very long-term buy when it trades at or below Fair Value. From one year ago to date, gold’s daily bars and the gradually rising Fair Value line show Fair Value’s rightmost supportive nature of late.

Of course, from the “Double Negative Dept.”, Fair Value appearing supportive does not mean gold cannot decline. The war continues to weigh on gold as the dollar rises toward accommodating the transaction of oil. Here we have the percentage tracks, war to date, of gold, oil (West Texas Intermediate) and the Dollar “Dixie” Index. The latter’s line lacks alacrity based on how it is priced by ICE (Intercontinental Exchange); but since the war began on 28 February, “Dixie” is up nearly 4%, which historically over any 101-trading-day range is fairly exceptional.

Gold’s weekly parabolic trend remains short as we review the bars and dots from one year ago to date. And yet, is gold finally finding a floor? Aided or not by Fair Value, now 3999, price is fighting to hold 4000. Even so, it is a stretch to flip the trend back to long: as shown below, the price required for the ensuing week is 4546, which would require an increase of at least 490 points, or 12.1%. Has gold ever gained 12.1% in a single week? In the century to date, only once — for the week ending 19 September 2008, as events unraveled for equities and others into the FinCrisis.

Gold’s expected weekly trading range is now 235 points, meaning it would take more than two straight-up weeks to set the trend long. Still, if this is a floor, there is further upside potential, subject to the state of the war and whether price can keep absorbing the overhead pressure around the 4000 area.

Drilling down to “The Now,” we turn to our two-panel gold graphic, with daily bars from three months ago to date on the left and a 10-day Market Profile on the right. Readers of the website’s daily Prescient Commentary know our view that gold’s 21-day linear regression trend is rotating toward positive. We had expected that to happen by last week’s end, but the war re-heated again and gold lacked the strength to rotate as such, as shown by the baby blue dots not quite clearing the 0% axis. If gold is putting in a floor, we should see the new positive trend develop next week.

By the Profile, price is fairly centered and supported by a nearby array of volume-dominant levels as labeled, although the major level to overcome is 4069.

Silver continues to perform in line with gold. Our like panels with the “Baby Blues” and Profile show that if silver clears its most volume-dominant resistance, labeled at 59.15, it should be “Hello 60s!”

Be that as it may, the wildcard remains the war, which from one day to the next waxes and wanes based on statements from behind the White House’s window panes. Cue The Temptations’ 1970 hit: “Ball of Confusion (That’s What the World Is Today)”

That provides a fitting segue into the Economic Barometer. The Baro has been in a confused state for about three months, though it got a deserved rest this past week as only three incoming metrics arrived, the downer being the Conference Board’s Leading (i.e. “lagging”) Indicators for June. However, New Home Sales for the month beat both consensus and May’s reading, which was also revised higher. Financial media also excitedly reported that Initial Jobless Claims for the week ending 18 July, at 187,000, were the lowest since 1969. That is incorrect: since the Baro’s inception in 1998, there have been seven other weeks with fewer claims, with the lowest being 167,000 for the week ending 02 April 2022.

With respect to stocks, we received a soliciting email yesterday with the subject “Are you ready for the crash?” We have been ready for four years.

“Oh, but earnings season is so great!” they say.

Year over year, yes, so far it is “great.” Of the 118 S&P 500 constituents that have reported, 85% — or 100 companies — have posted bottom-line improvement. However, from the “Record Needle is Stuck Dept.”, we again note that to sustain such excessive price levels, earnings ought to be doubling, if not tripling.

“But they’re not, right mmb?”

No, they are not, Squire, although the S&P’s live price/earnings ratio has eased a bit through the first three weeks of Q2 earnings season, from 46.5x to 42.2x, again per our opening Scoreboard. For those in West Palm Beach, that means if you buy the S&P today, you are paying $42.20 for something that earns $1.00. Yes, one can add in the small 1.133% dividend yield, but prices can actually go south. Of course, they always come back, right? Recall it took the S&P 500 just 13 years to record a 2% peak-to-peak gain from 2000 into 2013, in case you are keeping score at home.

Obviously we find this more preferable.

Quick note: next week’s 872nd consecutive Saturday edition of The Gold Update will likely be prepared on a somewhat short time fuse. Still, since it will be a month-end missive, it will include all the graphics you expect to see, with just a bit less verbosity and more to the point. On verra… and for gold and silver, hopefully a “Hurrah!” for finding a floor.

Cheers!

…m…

www.TheGoldUpdate.com www.deMeadville.com and now on “X”: @deMeadvillePro

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About the author

Mark Mead Baillie

Mark Mead Baillie’s business career began in banking and financial services with Banque Nationale de Paris, then moved to corporate research at Barclays Bank and later to work as an analyst and corporate lender with Société Générale. For the last 22 years, he has expanded his financial expertise by creating his own financial services company, de Meadville International, which follows his BEGOS complex of markets (Bond/Euro/Gold/Oil/S&P) and trading in futures. He is recognized for creative technical skills that surpass industry standards in making highly informed market assessments, and his work has been featured in Merrill Lynch Wealth Management client presentations. He is also the weekly author of “The Gold Update” and is known in the financial website community as “mmb” and “deMeadville.” Mr. Baillie holds a BS in Business from the University of Southern California and an MBA in Finance from Golden Gate University.