Gold's Geo-Political Run Looks Done

Recall that prior to what is sadly now occurring, we were seeking (given gold's "terrible technicals") a modest down run from January's closing gold price of 1798 toward the 1754 area.

Since then, however, especially given this past week's unconscionable state of affairs, we have emphasized gold's chronicled nature at the onset of geo-political turmoil for the price to rise, only to then fall back from whence it came as events unfold further.

And as horrifically senseless as is Russia's waging war on Ukraine --- wherein lives are comprehensively more important than the price of any market -- we are sensitive to gold possibly repeating the historical pattern of a "price spike and fade."

The following graphic depicts two gold price percentage change tracks across a 28-trading day period. The blue line represents gold eight years ago from Feb. 21, 2014 at the onset of Russia moving into then Ukraine's Crimean Peninsula; not six weeks later, with the incursion irreversible, gold regardless was lower to come on April 1 of that year.

The red line represents gold this year since Jan. 31, 2022 upon the first serious stirrings for Russia invading Ukraine. Note the directional similarity of the red line-to-date with the blue line back during the 2014 offensive.

No one knows how it will all go, but specific to gold, the two performance tracks' similarity is stunning. Moreover, it is suggestive that gold's geo-political run is done, the red line now keeling over nearly in sync with the blue line of eight years ago.

In no way making light of the matter, let's get straightaway to our cavalcade of graphics, beginning with gold's weekly bars from this time a year ago-to-date. The rightmost bar really emphasizes price's spike upon Russia materially moving into Ukraine, propelling gold to as high as 1977, a level not traded since Sept. 16, 2020.

And yet come Friday's settling at 1890, gold not only recorded a net loss for the week, but in fact its fourth-worst weekly high-to-low blow (-5.0%) since Thanksgiving week back in 2020.

As well from a year ago-to-date, here we have the percentage tracks of gold along with those of its high-level equities. And it is quite a spread of performances, with Franco-Nevada (FNV) +37%, Newmont (NEM) +25%, the VanEck Vectors gold Miners exchange-traded fund (GDX) +10%, gold itself +9%, Agnico Eagle Mines (AEM) -7%, the Global X Silver Miners exchange-traded fund (SIL) -16%, and Pan American Silver (PAAS) -29%.

Clearly, silver has underperformed gold. The gold/silver comparison around this date a year ago was at 64.9x, but (as depicted at the foot of the above graphic) it is now at 77.7x. Here are the tracks:

Collectively for the BEGOS Markets, next we have their year-to-date percentage changes, the podium dominated by oil, along with (to a much lesser degree) the precious metals. The cellar dweller is the S&P 500, its -8% slip seemingly mild given that from here (4385 and a "live" price/earnings ratio of 35.3x), should earnings not grow, price "ought" to fall to 2778 (an additional -37%) just to revert the P/E to its historical mean (now 22.3x).

And rising interest rates as the economy stagflates means the stock market deflates.

Let's take another look at the BEGOS Markets, the daily bars being for the past 21 trading days, with their respective grey diagonal regression trendlines and baby blue dots denoting the consistency of those trends, of which notably for gold and silver have been our friends, albeit not for the preferred reason.

That stated, over the years we've put forth that gold "ought" to rise in tandem with currency debasement, which it did magnificently through the first decade of this 21st century. And obviously by the opening the gold scoreboard, gold is priced at but one half its valuation. We do not relish gold rising on geo-political events, the worst of which is war.

However, repulsive as that is, we're detecting a renewed gold "awareness." To be sure, repugnant as it is, "everybody says" that the Russian invasion of Ukraine has kept gold's price aloft. But "everybody says" also now that it is not just the war boosting gold. Well, "everybody" may be a bit of an exaggeration, but the buzz is that gold ought be higher anyway because of inflation and all the money that's been printed. 

Did "everybody" just figure that out now? We're not holding our breath, but should price continue to beat a near-term retreat, 1854-1779 shows as structural support from which our 2254 forecast high for this year may indeed well appear.

In fact, to really push the envelope to the brink here, the "Trade of Trades" as we see it is to be long gold and short the S&P; (but it is that "when" which perennially seems in the way).

Now for the StateSide economy, Dow Jones Newswires just ran with this headline "Why This Economic Boom Can’t Lift America’s Spirits." To what "boom" do they refer? We don't see one here.

Meanwhile, the Federal Reserve fights continue, (except when it really counts given the Open Market Committee continues to vote unanimously). Either way, John Williams (amongst others) inferred this past week that a +0.25% rate hike to kick off The Great Rise ought be sufficient (as opposed to +0.50%).

Counter to that, both Michelle Bowman and Christopher Waller are in the +0.50% hike camp, the latter seeing inflation as "alarmingly high." And not to be left off the poker table, on the heels of calls for three rate hikes --- and then seven -- JPMorgan has now upped the ante to nine, (but not all in 2022). Still got stock? Good luck.

We'll stick with gold and silver. For which next we have their 10-day market profiles, the yellow metal being on the left and the white metal on the right, both well off their geo-politically-induced highs.

To round it out for the month's end (with Monday still in the balance), here is our broad-based structural chart for gold by its monthly bars across these last dozen years. The rightmost months of generally "higher lows" is encouraging toward resuming mitigation of the rampant debasement of the dollar.

Might gold tap the blue line high with 10 months remaining in 2022? As detailed a week ago, such gold price-rise distances have been achieved within like-timed stints.

Next week brings us the President's State of the Union Address, plus the Fed's Tan Tome and February's jobs data. The key unknown remains the state (or lack thereof) of sanity with respect to the war. Stay with your gold as it all unfolds, and take care.

Disclaimer: If ever a contributor needed a disclaimer, it's me. Indeed, your very presence here has already bound you in the Past, Present and Future to this disclaimer and to your acknowledging ...

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