Market Sentiment Marks A Fresh Bottom for Gold And A Sustainable Surge - ONE-TWENTY TWO: Trading Financial Markets

(This is an excerpt from an article I originally published on Seeking Alpha on February 14, 2016. Click here to read the entire piece.)

Google Trends continues to prove itself useful in assessing the potential for important turns in the direction of gold, specifically the SPDR Gold Shares (GLD).

On November 29, 2015, I wrote “No Bottom Yet For Gold But Its Current Decline Should Soon Slow.” In that piece, I used the trend in the odds for a rate hike in December to conclude that the rate of decline for GLD should slow going into the December meeting of the U.S. Federal Reserve. {snip}

SPDR Gold Shares has skyrocketed in 2016 for an impressive breakout above its 200-day moving average (DMA) and a 17% year-to-date gain.

Source: FreeStockCharts.com

{snip}

The momentum in GLD is finally starting to turn around with the first higher high since the 2011 peak.

Source: StockCharts.com

My assessment in November assumed that GLD would trade lower than it did before the next tradeable bottom. However, conditions changed, and Google Trends flagged the need to change the assessment. {snip}

The interest in "buy gold" rose notably in December, right in the final full week of the month (Dec 20 to 26th). July's rise in interest was more of a true spike higher. — The interest in “buy gold” rose notably in December, right in the final full week of the month (Dec 20 to 26th). July’s rise in interest was more of a true spike higher.

Interest in "buy gold" (and "sell gold" has reached higher heights in the past — Interest in “buy gold” (and “sell gold” has reached higher heights in the past

Source: Google Trends

I continue to compare “buy gold” to “sell gold” for reference. “Sell gold” has not provided a signal since gold’s peak in 2011, so since then my projections of transitions in GLD’s price direction have completely relied on “buy gold.” Fortunately, “buy gold” has proven itself sufficient.

Significant changes in interest rates and rate expectations have supported the tremendous rise and breakout in GLD over the past two weeks. {snip}

Perhaps the most important change in the rate environment is the financial market’s conclusion that the Federal Reserve will put “rate normalization” on hold for this year and beyond. {snip}

Following two days of testimony to Congress by Fed Chair Janet Yellen, the odds for the next rate hike to fall in 2016 shot upward. However, even December only has a 33% likelihood for the next rate hike.

Source: CME Group FedWatch

{snip}

iShares 20+ Year Treasury Bond (TLT) has taken off in 2016 like a rocket.

Source: FreeStockCharts.com

These kinds of moves should not happen at the same time central banks are generally sticking to relatively optimistic projections for global growth. {snip}

So, in the moment, debasement of paper currencies continues across the globe while looking forward financial authorities continue projecting positive growth responses from these debasements. As central banks insist on disproving the existence of a lower bound on monetary policy, the ironic impact may be to undermine confidence that sub-zero rates can rekindle the fires. {snip}
Be careful out there!

Full disclosure: long GLD

(This is an excerpt from an article I originally published on Seeking Alpha on February 14, 2016. Click here to read the entire piece.)

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