Gold – !! ♫ Return to Fair Value ♫ !!

Yes, the only difference in this week’s title from that of two missives ago is “??” having been replaced with “!!“.

To wit, we begin with a hat-tip to the Federal Reserve Bank of St. Louis — which this past Tuesday — released their monthly report of updated weekly “M2” Money Supply data.  Known benevolently as “FRED” (Federal Reserve Economic Data), its latest accounting found “M2” to have increased across a four-week stint from $22.879T to $23.063T (an additional +0.8%).  This in turn upped Gold’s Fair Value (properly adjusted by an approximate tonnage increase during the same period of +0.1%) from 3952 a week ago to now 3979.

SO:  (per our updated give-away title), guess what just happened?

Nary a week has passed year-to-date without our referencing Gold’s Fair Value.  ‘Tis right in the top of each piece’s Gold Scoreboard.  And throughout these many weeks of Gold charting a negative trend, we’ve guardedly pointed out time-and-again that price may well indeed be reverting down to its quintessential mean known as Fair Value.  And so it did Wednesday at precisely 18:03 GMT per this graphic of Gold by the hour for the entire week vis-à-vis Fair Value, including Tuesday’s generous effect on the latter courtesy of “FRED”.  And, (coincidentally or otherwise). in came the buyers:

Thus quite obviously, we must cue this one: “Do the Freddie”–[Freddie and the Dreamers, ’65]

“But mmb, you seem all excited because price has been going down!”

Not so much “excited“, dear Squire; rather, “relieved” by Gold’s having reverted to its most important valuation mean.  Moreover, the axiomatic attraction of Gold at Fair Value is its buying opportunity.  For (courtesy of the “Preaching to the Choir Dept.”), you know, and we know, and everyone from Bangor Maine to Honolulu and right ’round the world knows that Gold’s Fair Value never materially decreases because neither does the StateSide money supply.

We specify “materially“, for during times of rising interest rates, banks repaying loans through the Fed window in fact momentarily cause a reduction the money supply.  Yet, from as far back as 1980, the largest reduction in “M2” occurred just briefly over two weeks during 2023 from $20.765T to $20.599T  following the FedFunds rate having increased in excess of 5%.  So rarely, if ever, do money supply reductions last very long.  The higher the level of “M2”, the higher Gold’s Fair Value, even as adjusted for tonnage increases.  And Gold inevitably (although it can take years) reverts to — or at least toward — Fair Value, be it higher or lower.

Remember the ridiculously oversold Gold low of 1045 away back on 03 December 2015?  Fair Value that day for “the discarded, yieldless, old relic” was +134% higher at 2442.  This past 29 January, Gold reached 5586, (albeit ’twas then well overvalued as herein documented, Fair Value that day being 3856).

But now we’ve returned to reality, even as century-to-date Gold in settling yesterday (Friday) at 4103 is now +1,399%.  By comparison, the S&P “Casino” 500 including dividend reinvestment is but half that at +677%.  “What’s been in your wallet?”  (As you long-time readers know, we fortunately learned to turn off the FinTV parrots 20 years ago and instead do our own math.  Gold wins.  Overwhelmingly).

The point being:  if you purchase Gold at or below Fair Value,  with patience, it categorically will be worth more in the future. Period.  ‘Tis the world’s easiest long-term trade!  Again as herein penned in our 29 March piece:

• “…What if — to pay off the StateSide federal debt of now $39T — the Fed merely made an accounting entry of same, and ’twas distributed to all the creditors?  To be sure, the ‘M2’ money supply would leap 2.7x from today’s $22T to some $61T.  Inflation would become hyper-impalpable.  And were it to happen, say, over this weekend, Gold having settled Friday [then] at 4492 would open Monday at 10,606 (by Fair Value precision) … just in case you’re scoring at home.  ‘Got Gold?’…”

To be sure however, we’ve got inflation.  With last Wednesday’s release of May’s “Fed-favoured” Personal Consumption Expenditures, the writing cannot be more clearly on the wall for FedHead Kevin “The Warrior” Warsh and his merry Open Market Committee members.  Our May Inflation Summary now complete, ’tis the same old story:  be it by the 12-month summation or the month’s annualization, inflation is running two-to-nearly-three times the Fed’s desired +2% target.  Fall further behind the curve and stagflate, or “suck it up” and raise the rate.  To mull it all over, there are 22 trading days into 29 July’s FOMC Policy Statement date:

‘Course, conventional wisdom over a higher interest rate doesn’t bode well for Gold’s fate, (although as we on occasion have graphically showed, during three years of rate rises from 2004 through 2006, Gold did just great, being attractively below the Fair Value slate).

Either way, here next are Gold’s weekly bars and parabolic trends from a year ago-to-date.  With now 15 weeks of the recorded red-dotted Short trend, this past weekly 4103 settle is the lowest yet of the entire run.  Further, we’ve moved the structural support zone down (from what had been 4584-4282) to now 4398-3901:

What do we expect from here?  At least some consolidation rather than much further deterioration.  As depicted earlier, Gold upon tapping Fair Value at 3979 instantly induced buying; too as stated in the opening Gold Scoreboard, price at present is -6.0% below its BEGOS* Market Value of 4363, (itself in decline); *BEGOS = Bond / Euro / Gold / Oil / S&P 500.  As for the distance requisite to flip the trend from Short to Long in the ensuing week, the noted 4855 level is a vast +752 points above the present 4103 price:  Gold’s expected weekly trading range is now 275 points, (the daily being 125 points); thus ’tis “gonna be a while”.

“Also, mmb, there was that one down trend that lasted 31 weeks, remember?”

Indeed so, Squire.  Specific to this 21st century, the yellow metal’s longest (no pun intended) weekly parabolic Short trend ran 31 weeks from 02 November 2012 through 31 May 2013 as the aforementioned status of having become “the discarded, yieldless, old relic” relegated Gold to being “boring and worthless”.  Instead, traders (likely watching TV) opted to chase S&P 500 retailers such as Penny’s, Radio Shack and Sears, (all subsequently having gone bankrupt).  Did we already ask “What’s been in your wallet?”  (Turned off the TV yet?)

Turning up this past week was the Economic Barometer, although as herein depicted a week ago, we remain somewhat “top-wary”.  Of next week’s 11 incoming metrics, just two vis-à-vis “consensus” are expected to have improved period-over-period.  That noted, the Baro settled this past week at its highest oscillative reading since 29 April 2024, six of the metrics being better, notably including both Personal Income and Spending for May. However, the “Big Surprise” of the week was the +0.5% revision to finalize Gross Domestic Product for Q1 at +2.1% (annualized):  that ties for the second largest final revision to any quarterly GDP reading since that for Q1 away back in 2015; (for those of you scoring at home, across the past 29 years, the average finalized GDP revision — be it up or down — averages just 0.2%).  So “Bravo!” to the Baro:

Note the Baro’s embedded bit about an -10% S&P 500 correction down into the 6800s, something upon which we’ve been harping through recent weeks.  This last bounce notwithstanding, we still sense the downside is the right side.

“But next is the summer rally, mmb…”

Squire, of the 25 completed Julys so far this century, whilst on balance a very good stock market month, seven of those (28%) have finished net negative.  Given that fact — and considering the last 11 Julys all have been up — a down one we might say is “due”.  Again, “The Warrior” takes to the podium 29 July.

In the interim, here we’ve the “Baby Blues” of 21-day linear regression trend consistency for both Gold on the left and for Silver on the right.  Across these past three months of daily bars, neither set of “Blues” has been pretty:

Too, by their respective 10-day market Profiles, overhead resistors appear as minefields for both Gold (below left) and Silver (below right).  How about a little Jefferson Starship from back in ’84? “No Way Out”:

And thus the selling of the precious metals has continued, but again, we now seek some degree of consolidation.  The overhead resistors as labeled in the above Profiles may serve at least as cash management guidance, admittedly a lost art in today’s “Nuthin’ but stocks!” casino.  But at least for Gold, its ♫ Return to Fair Value ♫ is a most welcome opportunity, especially should price move lower still, (for that later means higher).

Alternatively, there are the parrots:

Last, but hardly least:  R.I.P. Alan “Gold Bug” Greenspan.  His 20-year chairing of the Federal Reserve System fostered a +138% increase in the StateSide “M2” money supply and a +262% rise in the national debt.  But his successors these past 20 years have debased M2 an additional +249% and skyrocketed the debt by another +362%.  Double trouble!  What’s next?  “Got Gold?”

…m…

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