Sunday pre-game 1/29/12

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:

Finally on the weekly, daily candlestick, and daily close charts (respectively), the $36-$38 level continues to be exerting serious pull, as I mentioned last week.


Kid Dynamite said...

my wife is gonna be so pissed when she see's this pic.

I'm off the hook, though - I am way whiter than that guy with the yellow speedo. Pale like Casper.

much more ripped too.


Brian O'Flanagan said...

ah yes, Jaime and I go way back. One thing I can say with absolute certainty is that partying with bankers is far more fun than hanging out with a bunch of spam-eating end of the world metalhead doomers.

Jeanne d'Arc said...

Yeah, well, whilst you boys were all out partying in Italy, somehow Cinderella didn't get to go to the ball...

I did wonder why you were all so keen for me to spend a week in the coal cellar checking on James Turk's tax returns and Eric King's dental records. But you know I don't like to complain...

Looks like I have my explanation now, though. Hmpfh.

Oh, and by the way, GM: the names of your Ukrainian companions - as well you know - were Marko and Yuriy. And would that it were just your face they were massaging...

[don't make me go back in the coal cellar - please]

GM Jenkins said...

@ JdA: I was indeed joined by the two fine gentlemen Marko and Yuriy, but they served me only in the capacity of event planners. I must say I found them to be quite experienced in their trade and wonderfully accommodating, as after I had left Davos and then Lake Garda they selflessly saw to the satisfaction of my third leg.

Dr Durden said...

Fabulous cart porn. The reverse splits on the fist chart ain't bad, either.

But I wanted to alert you guys to something I've learned hanging out at Turdville. Just so you know why gold can't make it through $1750 and silver through $34 in the 19 minutes of market action some are fortunate to look because the EE is "capping" it there. No, just listen, it's true. Without the cartel "capping" gold since 2003, statistical analysis will show that it's price really is ...wait for it......$1749. 77.

Just when you think the stupidity can't get any stupider, someone stupid comes along and breaks that resistance. It's the only un"capped" truth left to Man. Lord help us all.

Warren James said...

[ Hi GM, I've noticed a few headlines across the web regarding negative yield bonds (ZH link, FOFOA discussion link).

While the discussion is that this could be a final tipping point, my guess is that the madness (of negative yeild bonds) could exist despite all expectations - after all they are technically already negative considering inflation, and it would just be following that lead from the New York bank of Mellon for charging clients for holding their cash (another negative yield).

I just thought it was interesting, since it seems like the Silver:10Y bond yield may yet have a chance of smashing through that zero line and keeping on going, as we discussed many moons ago. It's kind of surreal, but then it sort of fits perfectly with what is already going on. ]

p.s. Is that noise in the coal cellar JdA?

Warren James said...

[ uh, forgot to mention it was also discussed by Turd as well link), which I think is why it raised my interest - immediately I thought of your Silver:10Y chart.

Looks like the gold price is helping itself to Ben Bernanke's Spicy Chicken. I find it interesting how events seem to play into keeping Gold on that trendline. Yesterday I showed your charts to my brother who took note of the unusual (linear) patterns.

The question on everyone's lips is what happens when the yield goes officially negative. I'm not betting on the dam breaking just yet, current policy has shown how well they can keep defying gravity at all odds. But scary when an intellectual lightweight like myself can sit up and take note of this bonds stuff and the implications.

p.s. Finished writing all the Goldmoney file extraction routines for the database. I think I have enough data to start the next stage. ]

GM Jenkins said...

Hey Warren, you brought to mind an interesting point. It's possible that the long bond yield can't go much lower unless shorter term bonds actually go negative (i.e. why lend money for 10 years then?). And if the government wants to continue paying less and less interest in real terms (e.g. measured in physical silver, which unlike gold or oil, they and central banks have none), then either silver has to go up or bond yields have to continue going down.

And yeah, that is indeed JdA back in the coal cellar. On a recent trip to Burkina Faso I saw an orphan holding something that looked very much like low grade ore. I exchanged some colored rubber bands for it and gave it to JdA who kindly volunteered to do the gold cyanidation process down there.