Gold continues to act superbly for eager buyers in this time of seasonal softness. Against a background of static mine supply, Chinese demand is strengthening slightly and Indian demand is moderately soft.
The price action reflects these key fundamentals perfectly. Please click here now. Double-click to enlarge this important daily gold chart.
Amateur investors should focus on $100 per ounce price sales for gold. From the recent $1375 area highs, that makes my $1280 support zone even more important for accumulators of the world’s mightiest metal.
Some investors are concerned that rising oil prices will increase the AISC (all-in sustaining costs) of miners significantly. That was a legitimate concern during the past two decades when deflation and collapsing money velocity ruled the gold stocks roost.
America now looks eerily similar to the late 1960s, when inflation began to emerge. The oil shock of 1973 sent fuel prices skyrocketing, but gold stocks were bought aggressively by investors who were very worried about rampant inflation.
Gold stocks soared as fuel costs soared. That was then, and I believe it is poised to be now. Here’s why:
Bullion is a major asset class. In terms of dollar volume, more bullion trades daily in London than the entire NYSE daily volume. It’s the fifth most active FOREX contract in the world. Simply put, the market for bullion products is gargantuan.
In contrast, gold stocks are a very small sector of the market. So, it only takes modest institutional buying to boost prices, and boost them quite significantly.
Please click here now. Double-click to enlarge. This hourly-bars gold chart is technically positive. Some “build-out” of the right shoulder is possible, but that won’t take long.
The next COMEX option expiry day is May 24, and it should be the catalyst that launches the next great rally for the entire precious metals asset class.
Please click here now. In 2014 I predicted that China would lead a “gold bull era” where investors buy exponentially more physical gold with their smart phones.
Key gold jewellery manufacturers and retailers in China are seeing a significant increase in sales now, and I’ve predicted this is only the very beginning of what will be a glorious multi-decade ramp-up in online demand for gold.
Please click here now. Top technicians at Goldman see the $1275 price zone as the outskirts of a key buying area, but it’s possible that the low for this “price sale” is already in!
Please click here now. The fundamental drivers of American inflation are arguably as strong or even stronger now than they were in 1968.
US demographics bear similarity to that time; in the late 1960s, the baby boomers were young and rebellious. The London Gold Pool was ending. The free-trade for gold didn’t get completely launched until about 1974, but some gold products (like certificates) were free-trading by the late 1960s and gaining popularity. Most importantly, it was happening as rates and inflation rose.
A lot of analysts draw parallels between the economic policy of the Trump administration and the Reagan administration, and the policy is similar, but the Fed policy and the business cycle are not.
Both administrations used tax cuts to promote growth, but the Reagan administration had the start of the greatest rate cutting cycle in American history as wind at its back. It also took office at the end of a major economic downturn.
The Trump administration faces a rate hiking cycle, the late stage of the business cycle, and the end of a twenty year bear market in money velocity. The business upcycle has featured huge stock market buyback programs with only modest expenditure on business expansion. That’s very inflationary.
What’s essentially happening is the US private economy is expanding but overheating, and the US government is pushing rates higher with its huge budget deficit.
An inflationary genie is poised to leap out of the bottle in a very big way. The US private economy should continue to grow in the 3% range, but inflation will soon emerge. The big loser in this situation is the US government, and rightly so.
More inflationary tax cuts are almost certainly coming. These cuts are necessary. Even after Trump’s first tax cut, US small business taxes are still about twice as high as supposedly “socialist” Canada’s rate.
Please click here now. Double-click to enlarge. The US dollar bear market rally against the yen is probably almost over. A last push towards 112 – 115 is possible, but when Powell announces his next rate hike on June 13, it’s likely the end of the rally.
Please click here now. Double-click to enlarge this GDX chart. While GDX appears sleepy, many GDX component stocks are in powerful uptrends now. This often happens ahead of a major advance for indexes and ETFs like GDX.
Investors should watch the $23.25 price zone for GDX very closely. A two-day close above that line in the sand should ignite a multi-month advance towards my $30-$35 target zone, and probably by year-end. That’s a huge percentage gain for eager accumulators who buy with gusto now!
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.
Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
Are You Prepared?
The thrill of victory and the agony of defeat. Gold investors focused on the Western markets and government debt fear trade tend to feel the same kinds of thrills and agony that professional athletes regularly experience.
Here’s a good example: For a few days, silver soars higher on what appears to be the guaranteed start of a long-term uptrend. Within days or just hours, the gains are suddenly gone, and the price appears to be going much lower with absolute certainty.
Please click here now. Double-click to enlarge this positive-looking gold chart.
Bullion banks around the world arguably have the most effect on gold price discovery and they focus on physical supply versus demand.
Given that India’s gold-focused Akha Teej festival ended April 18, and Chinese jewellery demand is slightly soft (with dealer interest at $1320 – $1300), it’s clear that gold is not quite ready to surge above $1370 and begin a new era of sustained trading above $1400.
Also, some Fed speakers have hinted that the pace of Fed rate hikes could be slower than expected. At first glance, that would seem to be positive for gold, but fear trade price discovery is about how rates affect risk.
In the current environment, modest rate hikes support a “risk-on” theme. For a closer look at what I mean, please click here now. Double-click to enlarge this US dollar versus yen chart.
Bank FOREX traders view the dollar as risk-on and the yen and gold as risk-off, and rightly so. Given the beyond-insane financial state of the government, aggressive rate hikes from the Fed put the government at serious risk of being able to finance itself.In that situation, the dollar falls against the yen and gold.
In the immediate time frame, money managers believe that Powell will hike rates very gradually. That incentivizes money managers to take risk and invest in the dollar, because it will pay a higher rate of interest without putting too much pressure on the government’s ability to make its principal and interest payments on its debt.
Gold peaked in February as Chinese New Year buying peaked. Now it’s made another modest peak as Akha Teej buying peaks, with Western money managers believing that the Fed cares about the US government’s debt problems. These money managers also believe the Fed cares about the stock market.
Under Greenspan, Bernanke, and Yellen, the Fed cared. I don’t believe Powell cares what the ramifications of his actions are for the “spendaholic” government or for the Wall Street vampires that require low rate policy for their stock market buyback programs.
Please click here now. Double-click to enlarge this key bond market chart.
This chart tells me that the Fed is going to become vastly more aggressive with rate hikes and inflation is going much higher. The current price and time zone is the calm before that storm.
I expected Trump to launch tariffs, and he’s done that. Most investors are focused on whether the tariffs are good or bad for growth, rather than on the fact that they are inflationary.
Please click here now. I didn’t predict the sanctions that have been applied to Russia by the US government, although I’m not really surprised.
That’s because most of what all governments do involves the insane use of sticks much more than the sane use of carrots. Regardless, sanctions are here and they are inflationary. I view sanctions as nothing more than aggressive tariffs.
More are coming as governments (especially the US government) seek new sources of revenue to pay their debts as inflation and rates rise.
While many fear traders involved with gold stocks are nervous today, I don’t see anything to be concerned about. I suggested GDX would make a short-term peak at about $23.25 as Akha Teej demand peaked with the Fed in between rate hikes.
It’s done that and investors who have insured their “bull era ride” with GDX put options in that $23 area are now looking very good indeed. Some of these options rose 15% just in yesterday’s trading. The bottom line: Insurance works, whether it is home, auto, or price insurance for gold stocks.
Please click here now. I have two short term scenarios for GDX. The first involves the current pullback ending in the $22 area, and the second one shown here has the pullback end at around $21. Put options enthusiasts and those carrying a short position in GDX against their portfolio of individual miners could cover off half the puts at around $22 and the rest near $21.
As with gold and silver bullion, I have no concerns at all about the current price action in gold stocks. Most have staged huge rallies recently and many are above their February highs. A pullback is normal and expected as major Chindian festival demand peaks at a time when the Fed is in between major policy action.
Chindian income growth versus limited mine supply is the main driver of higher gold prices for the long term. There are no “upside breakouts” in that process. It’s ongoing and relentless. The inflationary policies of the debt-plagued US government and the Fed’s increasingly aggressive QT and rate hikes in response to that will generate significant institutional interest in gold stocks as gold trades above $1400.
All the fundamentals are in place to create significant inflation and debt financing problems for the West. They are also in place to create significant income growth in the East for a long period of time. The only thing that astute investors need to build sustained and significant wealth in the coming gold bull era is a very modest amount of patience and rational thought. It’s the greatest time in history to be invested in the precious metals asset class, and getting greater by the day!
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: