Dear readers, I have a long end-of-month post for you this week. I had actually planned on writing from Davos, where as part of the Screwtape crew I received a customary VIP pass. But as you might have heard, the damn place got run over by a blizzard, so Brian let us take his lear jet to San Felice del Benaco, where, on a delightful bird-watching jaunt between Brescia and Verona, we were recognized by some lovely fans who showed us the warm hospitality for which the Italians are justly renowned. (That's Kid Dynamite in the yellow speedos).
So special thanks go out to Brian, who on account of a talk he had to give at Davos, couldn't join us this week. I'd be remiss to omit that his speech ("From Banker to Blogger: a Shill's Journey") was, by all accounts, one of the high points of this year's convention. A poignantly honest account of his battles with sex addiction after joining JPM's lucrative "Remuneration for Misinformation" campaign, it featured such uproarious lines as when, in reply to an irate Jamie Dimon, who had accused him of blogging too infrequently, he shot back: "You scratch my back, sir, I'll snatch whores," a line greeted by boisterous, rip-roaring laughter in a standing-room only venue which included such luminaries as Gary Cohn, Richard Gnodde, Indra Nooyi, Carl-Henrik Svanberg, Terry Leahy, Saddam Hussein, and Bono.
The gold chart proves that events trump technicals. I expected a fight to get back into the 3 year +25% black channel, but the Fed announcement drove the gold price right back in there with hardly any resistance for an important weekly close. A consolidation in the channel would be a big deal. The center black line (which it's hit regularly over the past 3 years) will be at $2000 in a few months.
The daily chart over the same 3 year period shows similarly bullish price action. The "yellow zone" captures the low points of every single price correction since late 2008 (up until the surprising drop last December). The fact that gold shot right through that zone is important, as it had posed strong resistance over the past few weeks. I think it will stay above there.
Here's a chart with all the monthly closes for the past decade. Note that we didn't even hit the top of the narrow channel last August. Gold is now finishing the month right back in the center of the channel, which slopes upward at over 1.5% per month. Looking at this chart, I hope during the next big correction everyone has the good sense to avoid talking about "the death of a bull" unless gold at least finishes a month below its 21-month MA (purple, dotted line), which has happened only once (October 2008). That MA is now at $1476 and has just entered the grey channel again for the first time since 2008. (Of course, in October 2008, gold went far below the 21-month MA, hitting the 3-year MA, for the only monthly close out of the channel, and yet the bull was still very much alive. Perspective is important.)
Regular readers know I have occasionally pulled out the $GOLD:$USD chart, which appeared to have some predictive power for much of last year, though I have complained I don't quite understand how to interpret it. Well, while lounging by the infinity pool at an Italian spa after my man-facial and massage on Thursday, with two comely Ukrainians by my side whose names I have unfortunately forgotten, and noting that our time together seems to last longer with every trip, I had a eureka moment. See, like most of you, I keep my net worth in gold, and whenever I travel, I sell a gold brick or two for some spending cash, and then convert the dollars to the currency of the nation to which I travel. And that's exactly what the chart measures: purchasing power outside America over time when gold is converted first into dollars and then into foreign currency. The chart is notable for narrow channels with exactly the same slope (purple) which appear to last 3 years or so before a consolidation. More on this in a future post.
Moving on to silver, I cashed out of my trading account last week, proving the adage "discretion is the better part of failure." There was only one red day last week to rebuild my position, as seen on this chart (which shows that the pattern I recognized a few weeks ago is still active - see green boxes and blue lines):
I'm looking for some re-entry points at the green lines; the solid green line is actually an important long term trend line: