Big money flows into gold from Western Institutional investors are what continue to be the main drivers of the paper derived gold price. While Chinese and Indian demand is great, it is these western buyers that affect the global pricing due to the current structure of the global gold market.
Stewart Thomson discusses how this is the case recently and how there are some decent price targets for gold that are now likely in the not too distant future…
Gold Stocks Portfolio Fuel
By Stewart Thomson
1. SPDR fund tonnage (GLD-NYSE) has recaptured the 800 ton mark, and rose to 814 yesterday. This is happening as a steady wave of institutional money managers embrace gold as an important portfolio component.
2. It’s also occurring as Indian dealers begin buying for Diwali. The result of this overall ramp-up in demand is a beautiful surge higher in the gold price!
3. Please see below now. Double-click to enlarge this important gold chart. I call this my “Road To $1392” chart.
4. When the price of an asset arrives at major resistance in a huge chart pattern, a real upside breakout and sustained move higher can only occur if market fundamentals are aligned with the technical set-up.
5. The good news is that for gold, this appears to be the case. Please see below now. Double-click to enlarge this monthly gold chart. The $1377 – $1392 price range is the resistance zone of a huge inverse head and shoulders bottom pattern. It is the neckline of the pattern.
6. Note the tremendous rise in volume that is occurring as gold makes a beeline to that neckline. The Indian gold market has completed its restructuring, and Western money managers are lining up to add gold to their portfolios.
7. The managers are not just making a one-time purchase. They are adding gold as a percentage allocation. That allocation seems to be averaging around 5%. As the funds gather new assets, they buy more gold to maintain that 5% allocation.
8. Asian fund managers typically give gold an even higher allocation to gold in their funds than Western managers. As China and India become the main economic empires, Western money managers will tend to play “follow the Chindian leader”.
9. That means the current Western money manager allocation to gold that is about 5% could easily rise to 10% or 15% in the coming years. Clearly, all liquidity flow lights for gold…are green!
10. My weekly chart roadmap suggests that gold will rise not just to $1392, but to $1526, and $1800. Importantly, the rise will be accompanied by substantial growth in respect for gold as an asset class.
11. There’s a huge difference in a rally based on an event like QE and a rally based on a permanent portfolio commitment to the asset class. The latter produces price gains that are sustained.
12. Please see below now. Double-click to enlarge this important dollar versus yen chart. The 108 “line in the sand” seems ready to fail. A tumble towards 100 would almost guarantee that gold surges to $1392 and begins the move towards $1526.
13. The yen and gold are the two most important risk-off assets for heavyweight FOREX traders. The dollar entered a long-term bear market against the yen in 2016. That defined risk itself as entering a major bear market.
14. Please see below now. Double-click to enlarge. That’s a daily chart of the dollar versus the yen. It looks like a train wreck.
15. US taxes have not been cut. There’s not even any intention to cut the capital gains rate, let alone abolish it. That makes it almost impossible to attract serious long term investment capital into demographically-disastrous America.
16. Trump had a chance to turn the country into a bigger and better version of Switzerland, and oversee a tax-free empire where the citizens age with grace. Instead, a 1929 type of situation now seems imminent.
17. An inflationary depression is likely to follow the US government’s launch of what I call Trump’s “Tariffs to Infinity” program. He’s launching a mirror image of Herb Hoover’s tariffs program, and doing it with stocks, bonds, and real estate all in a precarious position.
18. That’s truly great news for gold stock investors! Please see below now. Double-click to enlarge this fabulous GDX chart. I’ve told gold bugs to watch for a big volume day to send GDX rocketing towards my $26 target, after buying every ten cents decline in the $23 – $18 price zone.
19. That volume surge occurred yesterday. Please see below now. Double-click to enlarge. On this two-year chart for GDX, my new $31 target is clear. That’s a key number, because it’s the equivalent of $1392 for gold.
20. The 2014 – 2017 period is the most important accumulation zone for gold stock enthusiasts in the history of the gold market, and perhaps in the history of all markets.
21. That’s because a reversal in US money velocity is imminent, and the gold stocks versus gold bullion bear market that began in 1995 has ended.
22. Tactics? Well, I realize that many gold bugs may have sold their gold stocks in 2014 – 2016 instead of launching the major accumulation program that I adamantly recommended. Some investors bought penny stocks in the general US equity market to try to make back the losses they booked with gold stocks.
23. That was obviously a mistake, and those stocks are vulnerable now to a 1929 type of crash. The bottom line is that the current situation of many gold bugs is unfortunate, but just as a car can be repaired, so can a portfolio be repaired.
24. Yesterday’s volume bar in GDX is a game changer. So is the growing allocation to gold by institutional money managers, and so is the completed restructuring of the Indian gold market. It’s time for investors to forget the past, move their portfolio cars into the gas station, and fuel up on gold and silver stocks!
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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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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:
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