Money supply jumped a fair amount in the latest week, directionally in line with the seasonal tendencies but well ahead of the average gain seen in the ninth week of the year since 1980. The following two graphs show the weekly and 8-week percentage change in money supply versus the comparable weekly change over the last 30 years.
Weekly Change
8-Week Change
Although outsized relative to the average, looking at the standardized results the latest week's gain in the money supply is not outside of the normal curve. This leads me to conclude that the gain reported in the week is just part of the normal seasonal flow in money supply and that money supply should increase in the weeks ahead.
I mention this because the price of gold has rebounded in the latest week, partly on improved interest from investors and on renewed banking worries out of Europe. The rise in the price of gold, despite the increase in money supply, has pushed the timing models down in the latest week. The one-year calculation model was running at levels below -2 but is now hovering -1.9. Additionally, the 6-month model is currently -1.47, worse from the results in prior weeks that approached -2 on a end-of-week basis. The latest model results are shown below, graphically.
3-Month Model, -1.27
1-Year Model, -1.9
6-Month Model, -1.47
This leads me to conclude that investors should slow if not outright stop their buying of gold and precious metal stocks at this conjuncture. Yes, we are not talking about huge amounts here, considering the Phily Gold/Silver Mining Index is just 5 points off the low, but I think that the lack of volume conviction on the upside does put a retest of the lows as distinct probability. That said, I am not selling my positions and would continue to accumulate gold and precious metal shares if 1) we see a distinct sign of upside volume conviction or 2) the models move back into a strong buy range. The latter could results in either a move up in money supply or a move down in the price of gold.
Weekly Change
8-Week Change
Although outsized relative to the average, looking at the standardized results the latest week's gain in the money supply is not outside of the normal curve. This leads me to conclude that the gain reported in the week is just part of the normal seasonal flow in money supply and that money supply should increase in the weeks ahead.
I mention this because the price of gold has rebounded in the latest week, partly on improved interest from investors and on renewed banking worries out of Europe. The rise in the price of gold, despite the increase in money supply, has pushed the timing models down in the latest week. The one-year calculation model was running at levels below -2 but is now hovering -1.9. Additionally, the 6-month model is currently -1.47, worse from the results in prior weeks that approached -2 on a end-of-week basis. The latest model results are shown below, graphically.
3-Month Model, -1.27
1-Year Model, -1.9
6-Month Model, -1.47
This leads me to conclude that investors should slow if not outright stop their buying of gold and precious metal stocks at this conjuncture. Yes, we are not talking about huge amounts here, considering the Phily Gold/Silver Mining Index is just 5 points off the low, but I think that the lack of volume conviction on the upside does put a retest of the lows as distinct probability. That said, I am not selling my positions and would continue to accumulate gold and precious metal shares if 1) we see a distinct sign of upside volume conviction or 2) the models move back into a strong buy range. The latter could results in either a move up in money supply or a move down in the price of gold.
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