Weekly Gold Analysis- 'It's Obvious'

Gold

Weekly SummaryIt's ObviousIt is obvious that:

based on fundamentals, equity valuations are stretched.
despite his ‘stand-up’ routine with a teleprompter in front of Congress, the Donald has not changed and will continue being certifiably insane.
coal mining is not going to “make America great again”.
the Donald didn’t know, until late last week, that healthcare was “so complicated”.
the search for yield has traveled all the way out to the thinnest twigs at the end of the debt-branch which is on the verge of snapping.
populist politicians are preying on the uneducated by perpetuating irrationality and pretending as though globalization can be rolled back when in fact it cannot.
the FED is going to hike rates in March and that will kill the bull.

A bastardized version of an old market adage applies: “If it’s obvious, it’s obviously meaningless”; the markets are being chased higher despite the ‘obvious’ reasons not to. This is the same behavior exhibited in maturing rallies like the 1999-2000 tech extravaganza. Remember how revenue-less companies were being valued in the $billions back then? This week, Snapchat’s IPO was bid-up 40% on its first day. Sound familiar? It’s impossible to predict exactly when reality will hit—the tech rally lasted almost five years past Greenspan’s “irrational exuberance” comment of Dec. 5, 1996—but it will hit.

GoldThe dollar and rates, have all bounced off their 38.2% Fibonacci retrace lines, which drove gold down from its 50% retrace of the August to December bear rout. The next support is in the $1220 zone which gold tested on Friday before rebounding in response to Yellen’s hawkish speech. All we can surmise from this response is that it was a case of “buy the rumor, and sell the news”, since she could not have make it any clearer that the FED intends to raise rates in March. We continue to maintain that the biases of the drivers of gold are up and therefore gold’s bias is down. In our view, Friday’s late-day reversal in rates and gold, was short-term profit-taking which is not the trend that we think is in effect. We expect gold to continue weakening as long as rates are on the rise. {This section is for paid subscribers only}The inflation driver continues to weaken as a FED rate-hike approaches. {This section is for paid subscribers only} We wish our subscribers a profitable week ahead and ask that email be monitored for Trade Alerts.

In the meantime, stocks rally blindly, and the spread between investment grade (IG) debt and high yield (HY) debt is at all-time low levels; apparently, there is no danger at these levels (chart below). The ‘wall of worry’ continues to be climbed…until we fall off the other side. A typical bull-market. Equities{This section is for paid subscribers only} The put-to-call ratio is neutral, having turned lower during the last week and-a-half (chart below). The ratio of the SPX price-earnings to the VIX volatility index (chart below) continues to indicate stretched equity values, but in true bull-market fashion, the SPX continues to rally. The price indicators (first chart below), and the GAAP earnings (second chart below), both display potential for continued appreciation of equities—despite all the obvious arguments against the bull-market. {This section is for paid subscribers only}