FYI | Oct 01 2019
By Peter Switzer, Switzer Super Report
Why is gold losing friends? It can’t be oversupply, so it has to be a belief that market smarties are backing in a trade deal or at least no escalation of the tit-for-tat tariff tussle between President Trump and Beijing. This is the five-day move in the gold price [pre last night’s drop] and it clearly reinforces my point.
To be honest, I’m no gold expert because the commodity doesn’t play fair or more correctly, I can’t pick where it might go.
One guy who tries to do just that is Percy Allan, who once headed up the New South Wales Treasury Department. He didn’t like his personal outcome from the GFC stock market crash. He founded the website monitoring service —www.markettimingaustralia.com.au — and what it told me over the weekend quite surprised me.
For quite a long time this year the indicators that he and his colleague survey had three recommendations of buy the local STW exchange traded fund to be long the S&P/ASX 200 Index. In contrast, the key indicators suggested locals should buy the ETF with the code GOLD and for those playing the world, GOLD was the preferred option. Those who followed Percy’s gold suggestion have been in the money, however, as the table below shows, the monitoring process has downgraded gold for the S&P 500 Index, which is captured in IVV. This is iShares ETF for the Index.
Source: markettimingaustralia.com.au
On May 12, Percy’s indicators recommended selling IVV and buying GOLD, which was very timely, as the chart below shows. There was an enormous spike in the gold price as Donald Trump and his tariff tantrums, the bond yield curve inverted and the Fed virtually told us that interest rates were on the slide to try and beat the threat of a recession.
Source: Goldbroker.com
And now the myriad of numbers, stats and market readings that go into Percy’s analysis are effectively saying “dump gold and buy the S&P500 Index!”
This is an important test of his market indicators and how they can interpret the conniving tweets and negotiations of Donald Trump and his team, not to mention the wrangling of the leadership team under Xi Jinping.
Certainly, technical chart analysis tries to pick up the weight of money movements as a sign of what smarties or insiders are doing and thinking. And undoubtedly, the body of work that underpins what Market Timing Australia produces is trying to tap into similar trends.
It has always been my base case that Donald Trump would want a trade deal before the end of the year to get enormous momentum going into the period of time that’s best for stocks i.e. November to April, in the year that’s best for stocks i.e. the third year of a US President and we’re in one of them right now.
Sure, I know Donald will play the cards that the Chinese deal him but with a slowing economy, the Chinese right now look like they want to contain this threat to their economic, social and political stability.
The Guardian today made the point: “China is stepping up its efforts to protect its economy from the ongoing damaging trade war with the US, ahead of fresh talks to resolve the dispute next month. The PBOC’s pledge came as the Chinese vice-commerce minister, Wang Shouwen, said Beijing would open up more sectors of the economy to foreign investors. Wang also announced that Beijing will send its top negotiator, vice premier Liu He, to lead negotiations with the US in early October.”
Recent economic data has shown that the tariffs are hurting China’s economy. Over half its exports to the US have been slugged with Trump tariffs, car sales have fallen in 14 of the last 15 months and factory output is at a 17-year low!
Keep your fingers crossed that the October 10 trade talks in Washington become the timely circuit-breaker that creates a trade truce and a stock market spike, while showing us that Percy’s market-watching service is a ripper.
Right now I’m going longer stocks and dumping gold. And I hope I can stay that way!
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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