Thursday, April 13, 2017

This Week's Message: What's Gold Trying To Tell Us?

So much for me dissing the gold bulls! Of course while I've been pointing out less than ideal technicals for the metal, I always disclaim that I make no price prediction -- just talking probabilities. Markets themselves of course don't give a rip about charts. The reason you and I do is because they give us a glimpse into trends in human action/emotion (i.e., what moves markets).

Here's a headline from this morning:
"As a flight to safety into U.S. Treasurys comes in and yields continue to compress, gold becomes a lot more attractive," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management said.
Schlossberg's a guy worth listening to. At least I think so, but that's only because his name was referenced a bunch of times in a book I once read on currencies. 

Of course -- as is always the case -- gold doesn't just go up because 'yields are compressing' or because it's cheap to begin with. Nope, there's gotta be a catalyst(s).

I previously referenced North Korea and the coming French elections. You want to see an interesting chart? Take a look at this one tracking gold along with the odds that a particular Frenchman wins his country's top seat:     click any chart to enlarge...

So why might safe-haven gold move with the odds that Jean-Luc Melenchon will become the next French president? Well, let's put it this way, the guy founded his own political party last year and titled it "Unsubmissive France".

Now, before you abandon everything Europe, and pour all you got into gold (which of course would require that you abandon everything else), allow me to put that chart in perspective. The spike there took the implied probability from 1.2 to 10.

Here's the rest of the field:

Nah, I wouldn't, at this point, give that first chart too much credibility.

Now, gold rising as front-runner Macron's odds decline would be something to pay attention to, given who -- according to the odds makers -- sits in second place (Marine Le Pen).

So why worry about Ms. Le Pen? Well, her party is called "National Front", which is a hard-line nationalist, right-wing, lets leave the Euro, party. Of course recent history doesn't necessarily support the notion that such a victory would -- as "experts" seem to think -- roil the system.

Gold's rise for now is probably more about rising fear over North Korea, etc. As opposed to, say, heightened economic stress -- which is my chief interest with regard to gold.

Here are 3 data points from this morning:

The economy, at this juncture, doesn't seem to be supporting the story.

In this week's video I pointed out how gold's been losing it right at its 200-day moving average. Well, not anymore!

So, per Paul Tudor Jones (as I quoted on the video), own it when it trades above the 200-dma! Well, not so fast, recall (if you watched) that I followed with, "as long as the 200-dma is upward-sloping". Note that it's currently not, at least not yet.

Here's why that slope, in my view, is critical if you're a long-term investor:

Notice how the 200-dma breaks over the past two years were not buying opportunities as long as the line was sloping down. And notice how early last year the break was legit as the slope turned higher shortly thereafter.

Now this doesn't suggest that this week's break isn't legit, it's just that I won't be couching it as such (technically-speaking) until that 200-dma changes direction.

As for stocks, the setup (for us long-term investors) looks at this point better than gold's and, in my view, speaks more to present economic reality.

But I'll keep an open mind...

Happy Easter!

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