The weak physical demand season continues to cause gold to drift with a clear but modest downside bias.
Despite the swoon, most top bank analysts are extremely positive in their outlook for gold in the second half of the year.
Please click here now. Standard Chartered (LON:STAN) analyst Suki Cooper notes a high correlation between the Fed’s actions now and in 2006. Gold does respond to a more dovish Fed, but not immediately.
Suki also predicts US GDP growth will be under 2.5% in 2019, fade to under 2% in 2020, and a downturn will begin in 2021.
She expects the Fed to remain in pause mode and then announce a rate cut as growth and corporate profits continue to fade.
The IMF predicts a similar fade in global growth generally, with the exception of China. India is also likely to see strong growth and that will likely be augmented with government handouts related to the election there.
Essentially, the West will see fading growth. The Fed’s actions will be negative for the dollar and positive for the fear trade for gold. The East will see solid growth and that will be supportive for the love trade for gold.
The big picture for gold in both the East and the West is positive.
This is the VanEck Vectors Gold Miners ETF (NYSE:GDX) chart.
While the bank analysts are happy to wait out the weak season, I focus on swing trading with my guswinger.com trade alerts service. While many gold investors are a bit gloomy right now, we’ve been “riding the gravy train” with DUST-NYSE throughout most of the latest GDX downturn.
Recent COT reports show the commercials doing aggressive buying of both gold and silver COMEX contracts. That’s positive but it doesn’t reduce account drawdowns for gold stock investors.
Ultimately, winning trades are how to reduce drawdowns and commercial traders on the COMEX are currently covering enormous short positions at huge profits.
Diversification plays a key role in successful investing. A modest allocation of capital to a solid swing trade program should be part of that diversification.
This is the daily gold chart.
A potential bull wedge pattern is in play, but until there’s a bigger rally it’s not an actual textbook pattern.
On a positive note, the blue lag line of my 14,7,7 Stochastics oscillator is almost oversold and “rallies with teeth” tend to occur when that happens.
Chinese citizens are becoming more positive about their economy and gold demand is perking up. The Akha Teej festival in India is scheduled for May 7 and demand is picking up there too.
The commercial trader buying on the COMEX could be related to this Chindian love trade but the intensity of the buying could also suggest that commercial traders are also anticipating the US stock market could have a particularly nasty “Sell in May and go away” decline.
The S&P 500 index is near its highs and oil prices keep climbing. For now, oil is really in a sweet spot where it is high enough to help S&P 500 earnings but not too high to hurt consumers.
That could change quite dramatically, depending on how Iran responds to yesterday’s US government “My way or the highway” announcement to end sanctions waivers on Iranian oil exports.
Good news for oil company earnings could quickly morph into “stagflationary concern” and this could be on the minds of the COMEX commercial traders who are buying gold and silver extremely aggressively now.
American “Gmen” enforce these sanctions by threatening to cut nations off from the dollar-oriented US financial system unless they follow their orders. In the big picture, US government “my way or the highwayism” related to Iran is simply going to accelerate the global wave of de-dollarization, which is good news for gold investors.
This is the GDX chart. The 50% retracement zone in the $20.50 area and the 60% retracement zone in the $20 area are where gold stock investors should look for a significant rally to begin.
The bottom line is that physical market demand softness is likely to continue into the summer… but a big relief rally for the entire precious metals sector is imminent!
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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