BarroMetrics Views: Is Gold Sending A Warning?
In his latest issue of Shadow Stats, John Williams says: “A confluence of signals has aroused my gut instincts of an intensifying systemic liquidity crisis, and possible pending reaction by the Federal Reserve and/or the U.S. Treasury”.
If you want to know his reasons, you’ll have to subscribe to the newsletter. But his alert and last night’s price action in gold stirred my own instincts.
Since 2007, there has been a strong correlation between the S&P and Crude; a strong correlation between the DX (US$ Index) and Crude; and prior to 2007, a strong inverse correlation between the DX and Gold.
The interesting aspect of the recent price action is some of the correlations have broken down: S&P & Crude down heavily; DX basically unchanged and last night, Gold strongly up. To me, these signals are possible warning cues that John Williams’ alert may not be far off the mark.
It’s important to place last night’s Gold move in context. Gold is in a massive three-tier congestion range (see Figure 1):
- 1040 to 693
- 1011 to 869;
- 993 to 909.
So you would expect the dull price action that has been the norm. But last night’s Gold had a US$26.00 range - this is greater than mean +2 and almost mean +3 ATR (see Figure 1).Such a move always draws my attention - not just because it may signal a breakout trade (it does not for me) but may provide clues to a larger event (may be).
I also notice that yesterday Bernanke sounded a warning that unemployment was a cause of concern for the US economy. With Non-Farm Payrolls due on Friday, is ‘helicopter Ben’ providing a warning to strap on our safety belts - that Friday’s figures may be worse than expected?
These cues that I pick up are as often wrong as they are right. What they do provide is a stimulus to create scenarios in case they prove correct. That way I am not blindsided by an event I could have foreseen.
FIGURE 1 Gold
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