Can gold investors have their cake and eat it too? Is it possible for the Western fear trade and the Eastern love trade to push the price of gold higher at the same time?
I believe the awesome answer to that question is a definite, “Yes!” and here’s why I say that:
America has a president who has launched dollar-positive tariffs. It now appears that these tariffs are “here to stay.” This president has also talked about giving T-bond holders a “haircut.”
The easiest way to keep tariffs, promote exports, and give bond holders a hair cut without a default is to devalue the dollar.
This is the spectacular gold price chart.
I think dollar devaluation lies ahead, and given the advanced state of this enormous inverse head and shoulders bull continuation pattern, it may happen a lot sooner than most investors think.
It can be persuasively argued that the biggest weight on gold demand since 2011-2012 has been India’s gold import duty and gold-negative government policy.
The 80-20 import rule is gone, demonetization is in the past, the GST fiasco is over, and a panel has been set-up with a mission to double the gold sector’s contribution to GDP over the next five years! The only gold-negative policy promoted by India’s government now is the import duty.
While the dollar’s surge against the rupee and high oil prices make a duty cut unlikely in the short term, some form of dollar devaluation from the US Treasury would change the outlook for a cut dramatically.
Even without a duty cut, everything else happening for gold there is becoming positive. Demand is growing and that growth appears to be “here to stay.”
When tariffs first knocked the Chinese stock market lower, it weakened the celebratory mood of Chinese gold buyers.
As the stock market weakness persists though, Chinese investors are beginning to allocate new money to gold.
This is the VanEck Vectors Gold Miners (NYSE:GDX) chart.
Now that GDX has arrived in the base area of my $23 - $18 accumulation zone, investors need to be alert for signs of bottoming action.
The high volume and “spikey” price movement are positive signs. A double bottom or inverse H&S bottom pattern could be the next important technical event. Importantly, candlestick experts have noted a “Bull Harami” on GDX and elite Elliott Wave analysts suggest that a big up wave is imminent.
Note the position of the 14,7,7 series Stochastics oscillator. That’s positive. The COT reports and various sentiment indicators are suggesting a solid rally is near or already underway.
Most importantly of all: These short-term indicators suggest that given where gold sits in the weekly chart inverse H&S pattern (at the right shoulder low), the odds of an incredible surge up and out of this huge bullish pattern are growing and growing fast!
Because no event in any market is guaranteed, gold market “punters” should employ professional tactics to ensure they don’t end up as financial roadkill if all the positive analysis goes awry.
This is the important GLD-nyse put option chart. Gold market punters should always buy put option insurance to insure their punts. The December $112 GLD put option is a low-cost, simple, and effective way to do that.
It’s also a solid play for long term investors who may be worried about a portfolio that was unfortunately accumulated with a bit “price chase”.
To achieve maximum satisfaction with emotional stability, amateur investors should only accumulate gold and related items on $100 and $200 gold bullion price sales. Investors need to think of investing in gold and silver like shopping for gold and silver vegetables in a grocery store. Nobody goes shopping with a dump truck. It’s not necessary. Gold investors should shop for gold the same way; modestly, prudently, and with a smile.
The bottom line for gold this week: Trump is becoming quite annoyed with the dollar’s strength, and that’s happening just as the strong season for Chindian demand is about to begin. Love traders are already starting to buy some serious tonnage.
All of this is happening as gold makes what appears to be a final right shoulder low on the weekly chart, at the tail end of a five-year consolidation pattern. Gold’s fundamentals are now highly aligned with the technical price action.
I’ve noted that the current state of most short term technical indicators supports this right shoulder low thesis. For the world gold community, that’s what I call golden icing, on a fabulous bull era cake!
Thanks!
Cheers
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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