Friday, September 4, 2015

2015.09.04 Gold Cycle Model Chart

2015.09.04 Gold Cycle Model Chart

















The gold cycle model shows that over the past month, a long-term cycle extension has pushed the predictive model curve forward, but not enough to break the model, at least as of now. Please note I have changed the scale of the price.  The high Z-score from the previous iteration, as shown below, was associated with a rise in price level, though not enough to go return back into 'neutral zone' around the +/- 1 Z-score.  The previous iteration is shown below and here on the blog.

On a macro level, I was pondering how gold might rise in an environment where the received wisdom of the markets is that there will be a rate increase which will push up the dollar, thereby putting downward pressure on prices. However, one data point I noted was that during the recent equity market declines, capital did not appear to flow into 'safe' treasuries at the historically expected rate, which was explained by Asia selling USTs to support their currency, as they experience capital flows out of the respective countries.  For hedgers trying to front-run the Fed, this was a disaster.  Even if the Fed does raise rates, I wonder if that might have the opposite of the intended effect, since that would put even more pressure on countries holding a high level of US debt, and the response may be to sell the debt to support the currencies. I'm not an economist so take the musings with a grain of salt or two!



2015.07.17 Gold Cycle Model Chart

4 comments:

Anonymous said...

Hello Paolo,

Thank you for that Gold model. We have been waiting for it ;)
I was trading the Dow today and the correlation with the USD/JPY was astonishing.
At least one article has spoken about the carry trade short gold long USD/Yen and Nikkei.
No wonder how long this cyclical bear market in gold has been draged.
At the end, we might see bonds and the stock markets going down together.
Some say the 14 of September is a date to watch (29 Elul = Schemitah).
Armstrong's date is more like the 1st of October. We shall see about all that.
I monitor fundamentals, technicals, cycles, planets... and I read you!
Thank you for all your work. I have sent a little donation your way tonight.
Best reagrds, Diego.

Paolo said...

Thank you, Diego! I'm glad to see you find some of this information useful.

Paolo

beetlejuice said...

Paolo, a similar situation to the late 90's and LTCM and Asian currency crisis which saw huge amounts of capital flow to US equotites creating the dot com bubble which then burst in 00/01 and then saw capital withdrawn from equitites and repatriated back to the countries from where it came.

The European debt crisis this time created a similar flow of capital to US equities. What we now face will be a similar situation where as US markets implode, that capital will be withdrawn and repatriated, thus weakening the dollar NOT strengthening as most expect. The USD is tye MOST overcrowded traded in history and that is what I believe your gold model is capturing. A flood of capital out of the US and as in 00/01 when tne dot com bubble burst and gold took off as did gold stocks.


Cheers

Anonymous said...

Hi Paolo - many thanks for the update, greatly appreciated indeed. The following link below might be of interest to you regarding gold. I had read another outstanding (evidence-based) article of why gold can rise in the face of Fed rate hikes, contrary to expected opinion that will have everyone proclaiming the death of gold, although I can't recall the website at the moment. (I'll post the link if I can find it again.)

http://www.marketanthropology.com/2015/07/gold-is-dead-long-live-gold.html

It's totally supposition, but I suspect that if "The Bottom" is impending, market movers will create a monumental "fear" spike-down around the first Fed hike (whenever that will occur). The current $1073 low seems too orderly and amateur-trader friendly to be the real bottom. There's a lot of supply between $1073 and $1195 or so for market movers to exploit. The psychological $1000 threshold seems too close without warranting a fear-test and headlines of doom for gold.

Mr. Anon