In a boxing ring, size must be respected. In the same ring, a heavyweight champion fighter tends to absolutely destroy a flyweight fighter. In the gold market, size must also be respected.
This is the fabulous GDX weekly chart.
Trading volume size must be respected, and since late 2014 GDX volume has increased dramatically. In mid-2015, the already-huge volume size intensified, and even more so in 2016.
There’s no question that the $27 area highs represent significant resistance for GDX, and a pause in the upside fun at this point in time is perfectly normal.
Given the incredible value-oriented institutional enthusiasm about gold and gold stocks now, I’m very confident that any pause or pullback from $27 will occur on very light volume.
Overall, from a technical perspective, GDX and most gold stocks are performing at an “A Grade” level.
This is the weekly gold chart. The $1320 area low of April 2013 is a significant hurdle for gold bullion, as is the May 2013 area of $1336.
Gold bulls are battling the bears right now in this important price zone, just as gold stock bulls are battling gold stock bears in the $27 area in GDX.
The bottom line is that on a weekly chart basis, gold must close above $1336 and GDX must close above $27.61 to open the door
to another significant price advance for the precious metals sector.
Do I think the bulls will succeed? Of course I do, but I’ll dare to suggest that in the Western gold community, emotions often run “hot”. Even a small pause or pullback in the price of gold and GDX can produce outright panic amongst investors.
I’d like to see as many Western gold community “citizens” as possible move beyond that mindset, and take a more relaxed approach to their holdings of the ultimate asset.
Institutional Brexit fears were large enough to push gold into the $1320 - $1336 resistance zone. Without more fears, gold will have a difficult time continuing its advance.
COMEX margins are being increased, which also adds weight to the idea that gold needs a rest.
This is the important weekly gold chart that is priced in British pounds.
Gold surged out of a beautiful bull flag pattern ahead of the Brexit, and made it to the 1000 GBP price zone, which is massive resistance.
If the gargantuan love trade of China and India can come to the rescue of fear traders that are facing strong resistance at GDX $27, gold $1320, and gold 1000 BGP, any pullback now is likely to be mild and short-lived.
About 80% of India has now received monsoon rains. The Indian government’s weather expert track the monsoon’s movement, and I follow it daily.
It’s clear that only the North-Western crop zones of India have yet to receive monsoon rainfall, and I expect that to happen over the next 14 days.
As it becomes more evident that the upcoming harvest will be bountiful for India’s gold-obsessed farmers, banks and jewellers will loan the farmers money to buy gold for Diwali celebrations.
After many months of sluggish action, China’s imports just surged!
The Chinese government has recently endorsed higher deficit spending, and the citizens appear to be quickly responding with increased demand for gold.
As love trade demand rises, any new fear trade event could cause an even more dramatic spike in the gold price than the Brexit did.
In the current environment, institutional money managers are clearly not comfortable with “risk-on” assets like stock markets and debt-soaked fiat currencies.
Unlike the Fed in America, the European central bank (ECB) has no European Treasury to back it in a crisis situation. That’s an upside price driver of gold of potentially gargantuan size, and the Brexit has magnified the dangers of an ECB collapse. For GDX, the $25 to $20 area is a key buying area during any pullback, and I invite the entire Western gold community to join me in that key accumulation zone, if it happens!
Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.
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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