Intermarket Correlation Dance
Monday was Martin Luther King Day in the US. The price of gold dropped six bucks last week. The price of silver fell 26 cents, a greater percentage.
The price of gold can sometimes correlate well with the price of stocks. For example, from April 2009 – July 2011. The price of gold went from $892 to $1,626, while in the same time period the S&P went from 841 to 1,289. The percentages are different — gold’s was 82% and the S&P’s 53% — but they moved together. And now, they seem to be inversely correlated.
In the short term, the gold-SPX correlation has clearly turned negative (in fact, a negative correlation is generally thought of as “normal”). Over the short to medium-term, the correlation is cyclical, but it is indeed negative over the long term. The forces driving the cyclical element of the short-term moves are an agglomeration of contingent circumstances, time leads and lags and perceptions. The latter include the choices of market participants regarding which of the macroeconomic gold price drivers to particularly focus on. [PT]
One Great Big Difference
On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances. They are very much alike, these two distinguished men.
Let’s confuse him… [PT]
Commodities as an Alternative
Our readers are presumably following commodity prices. Commodities often provide an alternative to investing in stocks – and they have clearly discernible seasonal characteristics. Thus heating oil tends to be cheaper in the summer than during the heating season in winter, and wheat is typically more expensive before the harvest then thereafter.
Silver: 1,000 ounce good delivery bars [PT]
Something Odd is Happening
The price of gold went up two bucks, while that of silver fell ten pennies. Something’s odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range.
A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide rising stock prices… Collective Wall Street yammering soon ensues and the socialist central planning agency at the center of our so-called market economy is begged to intervene… After consulting its crystal ball, it decides to make a “coo” sound in late December (lower right corner), and presto – everything is fixed! Oddly enough, gold seemed to like the less accommodative Mr. Powell better. This does actually make sense on one level, but one would normally expect gold to like the prospect of a retreat from a tightening cycle even better. We do have some ideas on that topic, which we plan to discuss in an upcoming Acting Man gold update. [PT]
Almost Predictable
One of the more enticing things about financial markets is not that they’re predictable. Or that they’re not predictable. It’s that they’re almost predictable… or at least they seem they should be.
For a long time people believed – and from what we read and hear, many still do – that economic cycles move in easily predictable, regular time periods. All you had to do was create a chart of the up and down waves of your favorite cycle model and extrapolate it into the future, and presto, your prediction was ready to be sold. But it turns out it is not that simple. The chart above was published by the “Inflation Survival Letter” in the late 1970s and purported to show the future trend of the so-called Kondratiev Wave, a cycle invented by Soviet economist Nikolai Kondratiev (who was eventually deported to the GULAG and killed by the Stalin regime, after a fellow American economics professor denounced him to the communists in Moscow as a “counter-revolutionary”). Interestingly, their forecast of the trend in wholesale prices turned out to be correct, but everything else they predicted in this context was incorrect. According to the K-Wave theory, the year 2000 was supposed to have been the trough of a major economic depression, with extremely high unemployment, a plunging stock market and all the other symptoms associated with a giant bust. In reality, the year 2000 was the peak of a major boom, with unemployment almost reaching a record low and stock prices soaring to unprecedented valuations. There was a time when the seeming elegance and simplicity of models like Kondratiev’s had our attention as well. There are ways of rationalizing such models. For instance, one could argue that it takes a few generations to “forget the lessons of a depression” and end the risk aversion and penchant for saving it inculcates in the public. There are certainly kernels of truth in this, but the fact remains that the future is unknowable. Kondratiev e.g. didn’t know that the communist empire would crumble in 1990 and that half the world would join the hampered market economy of the nominally capitalist West. This was undoubtedly one of the factors helping to extend the economic boom well into the 1990s (precisely because it kept prices low, which in turn enabled central banks to implement loose monetary policies). [PT]
Fundamental Developments – Silver Looking Frisky
The price of gold went up four bucks, and the price of silver rose 32 cents. Silver has been going up in gold terms since the middle of last week, when the gold-silver ratio peaked at just under 87. It closed this week at just under 82 (a lower ratio means silver is more valuable).
Silver: more valuable since last week, both in absolute and relative terms. Just avoid dropping it on your toes – it’s still just as heavy as it always was. [PT]
Unexpected Inflection Points
High inflection points in life, like high inflection points in the stock market, are both humbling and instructive. One moment you think you’ve got the world by the tail. The next moment the rug’s yanked right out from under you.
The yanked rug… [PT]
Drain, drain, drain…
“Master!”, cried the punters,
“we urgently need rain!
We can no longer bear
this unprecedented pain!”
“I’m sorry my dear children,
you beg for rain in vain.
It is I who is in charge now
and mine’s the put-less reign.
The bubble dragon shall be slain,
by me, the bubble bane.
That rustling sound? That’s me…
as I drain and drain and drain.”
[ed note: cue evil laughter with lots of giant cave reverb]
– a public service message by the Fed chieftain, rendered in rhyme by yours truly
Money from thin air going back whence it came from – circling the drain of a ‘no reinvestment’ black hole strategically placed in its way by the dollar-sucking vampire bat Ptenochirus Iagori Powelli.
Has a Bear Market in Stocks Begun?
The stock market correction into late December was of approximately the same size as the mid 2015/early 2016 twin downturns, so this is not an idle question. Moreover, many bears seem quite confident lately from an anecdotal perspective, which may invite a continuation of the recent upward correction. That said, there is not much confirmation of said confidence in data that can be quantified.
Our proposed bearish wave count for the S&P 500 Index, which could easily be completely wrong, so take with a big grain of salt. Let us just note here that this chart looks bearish regardless of the wave labels. The latter are mainly meant to serve as an orientation aid (i.e., if something very different from the expected fractal shape develops, we would know that this interpretation is wrong; on the other hand, if the expected shape does develop, we could be reasonably confident of where short term turning points are likely to occur and would have further confirmation that a large scale bear market has begun).
Fundamental Developments: Physical Gold Scarcity Increases
Last week, the price of gold rose $25, and that of silver $0.60. Is it our turn? Is now when gold begins to go up? To outperform stocks?
Something has changed in the supply and demand picture. Let’s look at that picture. But, first, here is the chart of the prices of gold and silver.
Gold and silver priced in USD – the final week of the year was good to the precious metals. As an aside: January is the seasonally strongest month for silver. [PT]
The Recline and Flail of Western Civilization and Other 2019 Predictions
“I think it’s a tremendous opportunity to buy. Really a great opportunity to buy.” – President Donald Trump, Christmas Day 2018
Darts in a Blizzard
Today, as we prepare to close out the old, we offer a vast array of tidings. We bring words of doom and despair. We bring words of contemplation and reflection. And we also bring words of hope and sunshine.
Famous stock market investment adviser Field Marshal D. Trump [PT]
… Something Wicked this Way Comes
Last week the price of gold went up $18, and that of silver 6 cents. Looking at the ongoing stock market drop, someone asked us if this is “it”. So far in Q4, the stock market (S&P 500) has now lost more points than in any quarter during the great financial crisis (though so far less as a percentage). Is this it, will gold hit $10,000?
S&P 500 Index, daily – an unseemly slipping on the banana peel. [PT]
Most read in the last 20 days:
The Gold Debate – Where Do Things Stand in the Gold Market?
A Recurring Pattern When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating - prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent...
Monetary U-Turn: When Will the Fed Start Easing Again? Incrementum Advisory Board Meeting Q1 2019
Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below]. Trey Reik of Sprott USA. Also at the meeting, Jim Rickards, who is inter...
Acting Man Returns - A Brief Housekeeping Note
Pater Temporarily Keels Over Regular readers have no doubt noticed that the blog has fallen silent for around three weeks and may be wondering what has happened. In a nutshell, we were hospitalized. After a lengthy time period during which our health gradually but steadily deteriorated (we have complained about this previously), we finally keeled over. Thereupon we were forced to entrust the ruin that houses our mind to an experienced team of doctors (depicted below). A...
Watch Europe - Free Pass for the Elliott Wave European Financial Forecast
Europe at an Important Juncture European economic fundamentals have deteriorated rather noticeably over the past year - essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below: The Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks...
Why Warren Buffett Should Buy Gold
Riding the Tailwinds of Fiat Money Inflation to Fame and Fortune Warren Buffett bought his first shares of stock when he was 11 years old. He saved up $114.75 and “went all in,” purchasing three shares of Cities Service preferred stock. The day was March 11, 1942 – nearly 77 years ago. Buffett recently reminisced about this purchase in his annual letter to shareholders: “I had become a capitalist, and it felt good.” The Oracle of Omaha – he was...
Fake Money’s Face Value Deceit
Not the Brightest Tool in the Shed Shane Anthony Mele stumbled off the straight and narrow path many years ago. One bad decision here. Another there. And he was neck deep in the smelly stuff. These missteps compounded over the years and also magnified his natural shortcomings. Namely, that he’s a thief and – to be polite – a moron. Over-educated he ain't: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in...
Rise of the Zombies - Precious Metals Supply and Demand
Rise of the Zombies - Precious Metals Supply and Demand Last week, the prices of gold and silver fell $35 and ¢70, respectively. But what does that mean (other than woe unto anyone who owned silver futures with leverage)? The S&P 500 index and the euro was up a bit, though the yuan was flat and copper was down. Most notably, the spread between Treasury and junk yields fell. If the central banks can lower the risk of default premium, they can make everything unicorns and...
Bitcoin Bottom Building
Defending 3,800 and a Swing Trade Play For one week, bulls have been defending the 3,800 USD value area with success. But on March 4th they had to give way to the constant pressure. Prices fell quickly to the 3,700 USD level. These extended times of range bound trading are typical for Bitcoin Bottom Building in sideways ranges. This 60 minute chart of Bitcoin shows (represented by the yellow candlestick wicks) how the bulls defended 3,800 USD : BTCUSDT 60 minute chart...
The Magic Doesn't Always Work - Precious Metals Supply and Demand
The Week Ends with a Surprise The weekly closing prices of the precious metals were up +$5 and +¢11. But this does not tell the full story of the trading action. Prices were dropping until Friday. More precisely, Friday 8am in New York, or 1pm in London. Gold and silver - back in demand on Friday... [PT] At that moment, a light cabal conspiring to jack the price struck traders began buying. The end result was the prices, especially of silver, rose on the day...
Intraweek Profit Opportunities
In 6 of 10 Countries a Single Day Outperforms the Entire Week! In the Seasonal Insights issue of 13 February 2019 I presented a study illustrating the power of intraweek effects. The article was entitled “S&P 500 Index: A Single Day Beats the Entire Week!” The result of the study: if one had been invested exclusively during a single day of the week since 2000 – namely on Tuesday – one would have outperformed a buy and hold strategy, beating the broad market. Moreover,...
Austrian Theory and Investment
Realtime Charts
Gold in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
Gold in EUR:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_euoz_2.gif)
Silver in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
Platinum in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/platinum/t24_pt_en_usoz_2.gif)
USD - Index:
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
Diary of a Rogue Economist
- Feed has no items.
