Graceland Updates: “Gold: Is Investor Patience Required?”

  1. The GOAU ETF continues to showcase the most impressive technical action in the entire precious metals ETF sector.
  2. Please click here now. Double-click to enlarge.  A bull wedge breakout with a pickup in volume is in play.
  3. Gold has been reacting negatively ahead of recent FOMC meetings, and that’s the case this week.
  4. The pullback offers a decent entry point for GOAU enthusiasts.  Investors who want additional performance can consider buying four or five of the component stocks instead of the ETF.  There are solid seniors and juniors to choose from. 
  5. My recommendation is to own both the ETF and some component stocks.
  6. Please click here now.  Double-click to enlarge this Chinese stock market chart.
  7. The US business cycle has been dramatically extended by QE, ultra-low interest rates, and government debt-oriented spending.
  8. Mainstream money managers have high hopes for a US-China trade deal.  I think my view is more realistic; the imminent “trade deal” is really just a tariff tax lock, but it provides enough stability for corporate boards to do some planning.
  9. Also, I expect the PBOC to provide additional stimulus if there is a tariffs lock deal, and that’s enough for money managers.
  10. They will drive global stock markets higher without much change in GDP growth.
  11. At this late stage of the business cycle, wise investors begin watching for signs of inflation.
  12. The low rates and QE have fuelled government debt and spending worship.  Both gold and stock markets could rally higher… while GDP growth stagnates and government debt continues to spike higher. 
  13. Major bank economists generally expect the Fed to cut rates tomorrow and then pause for an extended period.  Does the Fed anticipate a late cycle rise in inflation?
  14. I think so, and I think the Fed will not hike rates as that rise takes place.  The US election is getting closer and Trump is likely to announce some vote-grabbing spending that puts the government deeper in debt.
  15. If elected, the democrats would quickly act to make the Trump government’s entire debt ramp-up look like a peanut play.
  16. A Fed that doesn’t hike in the face of an inflation uptick and government debt spike is a dovish Fed.
  17. Please click here now. Double-click to enlarge.  Silver is another asset that looks technically impressive.
  18. There is wedging and bullish triangle action all over the chart.
  19. Please click here now. Double-click to enlarge.  Gold has an ascending triangle in play.  A two-day close over $1521 in the cash market is required to launch a rally back to the $1566 area highs.
  20. Gold is well-positioned fundamentally.  If Trump fails to get a tariff tax lock deal and the Fed doesn’t accommodate him with a December rate cut, the US stock market could begin tanking in January…
  21. Just as the Chinese New Year “power buying” season for gold begins!  Gold would get a huge safe-haven bid in that scenario.  If he gets a deal, inflation pressures already beginning in China are likely to be exported to America.
  22. A global markets rally would add to those pressures and gold (but especially silver) would surge higher.  It’s win-win for gold in the medium and long term, and in the short term it’s time to buy.
  23. Most money managers view QE as having outlived its usefulness for economic growth.  It can still pump up stock markets, but in the next major downturn, QE is likely to become more of an inflationary force than deflationary.
  24. Please click here now. Double-click to enlarge.  When gold declined to the $1228 support zone in 2013, I called it a major buy, but I also warned investors that patience was required, as gold would trade sideways for many years before surging higher.  That’s exactly what happened.  Now, gold is at the $1500 area resistance zone.  Patience was required then and it is required now… but this time the patience needed can be measured in months rather than years!

By Stewart Thomson

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

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