Repeating Patterns and Positioning

A noteworthy confluence of patterns in gold and gold stocks is in evidence this year. At the close of trading on December 26, the HUI Index has given a (tentative) buy signal by completing a unique chart pattern, which is why we decided to briefly discuss the situation. As usual, things are not as straightforward and simple as they would ideally be, but there is always an element of uncertainty – one has to accept that as a given. Let us look at a chart illustrating one of said patterns:

 

This chart shows the gold price, the weekly net hedger position in gold futures (the inverse of the net speculative position), with the Fed’s December rate hikes in 2015, 2016 and 2017 highlighted by red vertical lines. Keep in mind that the December 2015 hike was the start of the current rate hike campaign. In the weeks leading up to it, the gold market was in the grip of a bearish hysteria, just as it approached a major lateral support level. Nearly every day Bloomberg, Reuters and other mainstream financial media published articles by “experts” no-one had ever heard of before (or since!), along with reports from analysts working for various well-known investment banks, all of whom stridently insisted that the beginning rate hike cycle was going to be the most bearish thing that could possibly befall the gold market, and that a further collapse in prices was nearly certain to coincide with it. Not surprisingly, the exact opposite has happened. You were definitely not surprised if you were reading this blog at the time – see for instance “Gold and the Federal Funds Rate”. As we pointed out therein: “[The] guessers at SocGen might actually have improved their statistical odds a bit if they had said “now that the Fed is hiking rates, gold prices should rise”. As noted in the chart annotation, in all three years gold prices declined into a December low, seemingly driven by fear of the coming rate hike and then proceeded to rally in a typical “buy the news” scenario. The declines tended to lower net speculative long positions to levels conducive to a renewed advance. So far the gold price lows coinciding with these rate hikes are increasing by approximately $100 per year. We expect this uptrend to accelerate noticeably once the rate hike campaign is unceremoniously thrown overboard. ETA: sometime next year, the precise timing depends on when the asset bubble peaks and reverses – the clock is ticking on that – click to enlarge.

 

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Remarkable and Extraordinary Growth

Good cheer has arrived at precisely the perfect moment. You can really see it. Record stock prices, stout economic growth, and a GOP tax reform bill to boot. Has there ever been a more flawless week leading up to Christmas?

 

Here’s what really happened: the government’s minions confiscated everything Santa had on him when he crossed the border and then added it to GDP. You know how it is… if something feels too good to be true… [PT]

 

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A Difficult, but Also Exciting Year…

Dear Readers,

Another year is coming to a close, and the team at Acting Man wishes you and your loved ones a Merry Christmas / Happy Holidays and all the best for the new year.

You have probably noticed that your main scribe was a lot less prolific this year than he normally tends to be; unfortunately, we were held back by health-related issues. We remain among the quick though and will try to increase our posting frequency again. After all, it is not as though nothing interesting were happening.

 

We felt a bit like Santa feels in this picture this year, but we are recovering. Santa recovered too, just look at the stock market at the end of the year for evidence.

 

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A Brief Outbreak of Sanity

After nearly a year of gaffes, provocations, threats, bombings, destabilizing arms deals, and, most recently, the disastrous decision to recognize Jerusalem as the capital of Israel, the sanest member of the Trump Administration, Secretary of State Rex Tillerson, appeared to have begun a new and promising diplomatic direction in relations with tiny, beleaguered North Korea.

 

Oil man and uranium man – will there be an exchange of binoculars soon? As regular readers know, after studying numerous official photographs of Kim, we have concluded that what he really wants is a pair or two of really spiffy new binoculars. International diplomacy is not exactly rocket science, one just needs to be a little observant. And giving him new field glasses would be a lot cheaper, less bloody, and less likely to generate unhealthy levels of radiation than waging war.  [PT]

Screenshot via nypost.com

 

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Misbehaving Metals

In past issues of Seasonal Insights I have discussed the very odd behavior of a variety of instruments in the course of the typical week: in issue 17 the topic were intra-week moves in S&P 500 Index, and in issue 18 the no less interesting intra-week pattern in Bitcoin.

In issue 22 I moved on to the “Strange Behavior of Gold Investors from Monday to Thursday”, which was followed by an examination of the associated pattern in silver a week later.

 

The metals back when they were young. Their behavioral issues became evident at an early age already, and the passage of time has done nothing to alleviate them. Our pal palladium is a particularly obnoxious specimen, known for spending his Fridays sneaking up on and murdering unsuspecting and by now nearly extinct bears in cold blood with disconcerting regularity and great verve. [PT]

 

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Contradictory Signals

 

Special antennae that help traders catch upcoming opportunities. Available from the same outfit that sells the soup-cooling spoon (Acme Inc).

 

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Another Shoeshine Boy Moment

We recently pondered the markets while trying out our brand-new electric soup-cooling spoon (see below). We are pondering the markets quite often lately, because we believe tail risk has grown by leaps and bounds and we may be quite close to an important juncture, i.e.,  the kind of pivot that can generate both a lot of excitement and a lot of regret all around. Provided one manages to grasp the nettle with the proper combination of preparation and luck, the emphasis may be on excitement rather than regret.

 

Modern soup-cooling spoon for the sophisticated gourmet. We are not the gentleman in the picture, we don’t even know him, we just wanted to show this nifty spoon in operation. Once you have one, you will wonder how civilized life was even possible before it.

Photo credit: Hans Reinhart / Getty Images

 

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Bogus Jobs Pay Big Bucks

The political differences of today’s two leading parties are not over ultimate questions of principle.  Rather, they are over opposing answers to the question of how a goal can be achieved with the least sacrifice.  For lawmakers, the goal is to promise the populace something for nothing, while pretending to make good on it.

 

The short and sweet definition of democratic elections by eminent American wordsmith and political philosopher H.L. Mencken [PT]

 

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An Astonishing Statistic

As the final FOMC announcement of the year approaches, we want to briefly return to the topic of how the meeting tends to affect the stock market from a statistical perspective. As long time readers may recall, the typical performance of the stock market in the trading days immediately ahead of FOMC announcements was quite remarkable in recent decades. We are referring to the Seaonax event study of the average (or seasonal) performance across a very large number of events, namely the past 160 monetary policy announcements and the 10 trading days surrounding them. It looks as follows:

 

We have highlighted the period of maximum profit over the past 20 years in dark gray, which is achieved over a holding period of  8 trading days and amounts to an average of 60 basis points. At first glance that may not look like much, but it actually works out to a 21.89 percent annualized gain, which exceeds the gain generated in the “rest of the time” by a vast margin. As the detailed returns in individual years at the bottom show, in some years particularly large gains were posted around FOMC meetings – these were as a rule associated with new cyclical bull markets just after the end of major bear markets. The largest losses were obviously primarily associated with bear market periods, but they are both much fewer in number than the gains and much smaller on average – click to enlarge.

 

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When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.

 

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

 

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The Gift that Keeps on Giving

Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

 

Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]

 

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Questions and Answers

A reader emailed us, to ask a few pointed questions. Paraphrasing, they are:

 

  1. Who cares if dollars are calculated in gold or gold is calculated in dollars? People care only if their purchasing power has grown.
  2. What is the basis good for? Is it just mathematical play for gold theorists? How does knowing the basis help your readers? Is it just a theoretical explanation of what has already happened?
  3. Prove that if someone has known the basis for the last four years, he has benefited.

 

Tell us about your crystal ball, oh great oracle. Is it any good? Can you divine the future for us and make us all rich? Quick? [PT]

 

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