Gold: Big Picture Focus

gold standardAs gold rises steadily higher, it “refuses to have a correction”. That’s making some investors nervous. Gold is the greatest investment asset in the world, so it’s important to stay focused on the big picture.
Gold market technicians should be open to the possibility that in the bigger picture, this rally has only just started.
Many of PM investors are likely to sell on a rally back to the $1500 area, to cut the huge losses they sustained in 2013.  They are highly confused, and suffering from immense drawdowns.  This fact defines them as weak-handed investors.  When weak hands book losses, whether it is on a rally or a decline, that’s bullish.
When weak-handed investors are looking to bail on a market, that market tends to move much higher, and the Dow moved relentlessly higher during the 2003 – 2007 period. I think a similar situation may be at hand now, in the gold market.

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Submitted by Stewart Thomson:

  1. As gold rises steadily higher, it “refuses to have a correction”. That’s making some investors nervous.  Gold is the greatest investment asset in the world, so it’s important to stay focused on the big picture. 
  2. To do so, please click here now.  Double-click to enlarge this key monthly gold chart.  Note the green Keltner lines, which are like river banks around the price bars. 
  3. Gold hasn’t even risen as high as the middle dotted Keltner line.  Gold market technicians should be open to the possibility that in the bigger picture, this rally has only just started.
  4. The 14,3,3 Stochastics series and the 8,16,9 MACD series are particularly impressive.
  5. Note the red HSR (horizontal support and resistance) line that I’ve annotated, near $1526.  The entire $1500 price area is important, because as the year 2013 began, many analysts and investors believed it was an “unbreakable floor for gold”. 
  6. Fundamentally, they thought QE would continue to “infinity”.  When price went under the supposedly unbreakable floor, and the Fed actually tapered, they were stunned. 
  7. With their gold market world view now shattered, many of these investors are likely to sell on a rally back to the $1500 area, to cut the huge losses they sustained in 2013.  They are highly confused, and suffering from immense drawdowns.  This fact defines them as weak-handed investors.  When weak hands book losses, whether it is on a rally or a decline, that’s bullish.
  8. The current sentiment in the gold market has significant similarities with the sentiment in global stock markets, after the Dow and Nasdaq crashed in the year 2000.
  9. On that note, please click here now.  On this monthly chart of the Dow, I’ve highlighted the 2003 rally.  Professional investors held their positions and made a lot of money, while amateurs booked stock market losses on the rally, and moved into real estate.
  10. When weak-handed investors are looking to bail on a market, that market tends to move much higher, and the Dow moved relentlessly higher during the 2003 – 2007 period.  I think a similar situation may be at hand now, in the gold market.

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  11. Please click here now.  This daily CDNX chart mainly shows the action of Toronto stock exchange junior resource companies.  It’s arguably the most important junior resource stock index in the world.
  12. There’s a significant volume-based breakout in play on CDNX now, from a complex inverse head and shoulders bottom pattern.  I’ve highlighted a possible pullback with a red dotted line, but volume-based breakouts often have no pullback.
  13. Junior resource stocks are leading the precious metals sector now, and I expect that leadership to continue for several years. 
  14. On that note, please click here now.  I’ve highlighted the price action around the Keltner lines, on this key weekly GDXJ chart. 
  15. Most technicians tend to view a rally to the upper Keltner line as a sell signal.  In contrast, I’ll dare to suggest that the current rally above the Keltner supply line is a new uptrend signal.  In an uptrend, the “price river” tends to trade between the upper lines.  It rarely touches the lower line.
  16. The time for investors to “chase price” is when long term charts are technically oversold and volume is surging.  That’s the gold market’s technical situation now.
  17. Some analysts are claiming that if the current Indian government reduces import fees and restrictions, it won’t have any effect on the price of gold.  Unfortunately, I don’t think they really understand the fundamentals of the largest gold market in the world.  Significant duties and fees are being paid by Indian buyers to the government, and to the Indian mafia. 
  18. In a market free from restrictions, that money would be used to buy more gold.  Also, jewellery companies can’t attract investment money to expand, because they can’t declare any of the black market gold they are processing.  Institutional investors don’t want to invest in a black market operation.  Consequently, major Indian jewellery stock charts now look like the Dow did after 1929. 
  19. The idea that smuggled gold is as bullish for the gold price as a free Indian gold market is complete madness.  It’s akin to the idea that closing down the NYSE and replacing it with mafia-owned betting shops would be bullish for brokerage stocks.  The simple truth is that the upcoming Indian election could be a bullish game changer for gold investors around the world.
  20. On the American side, mainstream media is referring to the US Mint’s lacklustre February gold coin sales as “bearish”.  In contrast, most top bank economists tend to view Western mint sales (whether good or bad) as largely irrelevant to the price of gold.  Here’s why:  In January, which was a stellar monthly for sales, the US Mint sold only about three tons of gold coins, which mainstream media claimed was “bullish for gold”.
  21. In the overall picture of global demand and supply, three tons is not a big factor in determining the global price of gold.  Some individual Chinese jewellery companies are buying more gold than that, on a consistent monthly basis.  The bottom line is that there’s no need to panic over the low February US Mint sales numbers, because whether they are big or small, US Mint numbers are essentially irrelevant to the price of gold.
  22. In an era where gold stocks seem set to dominate bullion for a long period of time, GDX is arguably the most important ETF for gold investors to own.    
  23. That doesn’t mean that investors should invest more money in gold stocks than in gold.  A small investment in a gold stocks “thoroughbred horse” can add a lot of power to an investment portfolio, while the bullion Clydesdale plods steadily higher too.
  24. Please click here now.  Double-click to enlarge this daily GDX chart. Note the declining volume while the price has gyrated sideways, within the red box on the chart.  That’s bullish.  I’ve extended the Keltner lines.  Maybe there’s a light pullback towards the middle or lower Keltner line.  Maybe there’s a deeper pullback towards the $22.81 – $24.19 support zone.  While GDX may or may not have a minor pullback soon, I think investors need to stay on the bigger picture now, which is bullish!

 

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Thanks!  Cheers  St  

Stewart Thomson 

Graceland Updates

 

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Comments

  1. Bullet point 7 seems somewhat arbitrary.  If you’ve been holding on since Gold was at $1500/oz I would wager that stacker is in it for the long haul. This is all really exciting and hats off to the gold bugs but Silver is the horse I rode in on.  Nobody and I mean gold and silver bugs are going to be a loser when this thing blows.  cheers

    • @andrew james
       
      Perhaps, but we need to realize that in many instances when such articles discuss “gold” and “silver” like this, they are quite often referring to paper metals or a combination of paper and physical metals.  MANY people holding metals ETFs would jump at the chance to clear them off their books at no net loss.  Those holding real metal will be much less inclined to do so.

  2. What ‘gold refuses to have a correction’ means … is that it isn’t behaving according to the ‘unbounded supply’ presumption predicated on infinite ‘paper gold’.

    Well, maybe that’s a bold-faced lie and real limits in the physical realm translate to ‘gold shouldn’t have a correction’ … for quite a while.

    • @PatFields
       
      I’m not at all sure what a “bold-faced lie” is.  Is that anything like a “bald-faced lie”?  That came from the days when about half of the men in the US wore beards.  It was considered tremendous skill at lying to be able to tell one, and get away with it, with one’s face fully exposed.  Those hiding their true expression behind a beard did not need so much skill.  ;-)
       

    • Ed_B … “That came from the days when … men … wore beards … hiding their true expression”

      Cool, Ed. I didn’t know the etymology of the phrase … thanks, that was fascinating!

      I use ‘bold-faced’ in the sense of someone exhibiting self-assured condescension in making an assertive mis-statement.

  3. seems interesting the increases in US Treasury debt “foreigners” have amassed.
     
     
     
    Global
    Jan ’00 -      ’07 -          Dec ’13
    $1 T  —>  $1.6 T —> $5.6 T (cumulative “foreign” held US public outstanding Treasury debt)
    25% —>     40% —>    55%  (% of notes / bonds held by “foreigners”)
    1%  —>      1%  —>     25%  (% Fed held notes / bonds…Fed primarily held Bills until ’08)
    74% —>     59% —>    20%  (% domestically held notes / bonds)
     
     
    180% —>   130% —>  247% (% public vs. intra-gov debt)
    350% increase                         (public outstanding debt, $3.5 T to $12.4 T)
    250% increase                         (intra-gov debt, $2 T to $5 T)
    6.6% —>    5%    —>   2.4% (net interest rate on debt)
    $300B ->  $270B —> $223B (net interest paid on national debt)
     
     
    $9.2 T –> $13.7 T –> $16.1 T (GDP = 75% increase);
    $5.7 T –>  $9 T     –> $17.4 T (National debt = 305% increase )
     
     
    Japan vs. US debt – In Japan we are told institutions buy Japanese debt due to deflationary conditions coupled w/ a sense of national duty but nearly all Japanese debt is domestically held.  In the US, 1/3 of all Treasury debt is now “foreign” held and 55% of Public Outstanding.  With the Fed tapering (for argument sake to zero by year end) and deficits persisting, someone will need to continue buying the new issuance of a minimum of $500 B plus rollover all existing debt.  States and domestic institutions are loathe to buy @ such low rates.  This leaves only “foreigners” to continue increasing their gross and % of US debt likely to 75% holdings of all notes / bonds by 2015 and nearing a 50% holding of all US Treasury debt.
     
     
    The implications for Japan are scary but regardless whatever debt level is hit and the corresponding interest payments, the silver lining is the money will remain in the Japanese economy.  These Yen paid in interest can at least stay within the Japanese economy increasing the money velocity and multiplier effects.
     
     
    The implication for the US are honestly far worse as “foreigners” are under no such national duty and may redeploy assets as they please.  Much of the interest paid to “foreigners” simply exits the economy with no multiplier or velocity effects.
     
     
    The idea that this is sustainable or that US debt isn’t an issue right now, right here is unbelievable.  There is a $5 T and growing weight over our heads and the rope suspending it can fail at any moment.  A reversion to the average 50yr yields around 7% would produce Treasury yields with gigantic interest payments, of which nearly half would exit the economy to “foreigners”:
     
     
    5% blended interest payments = $875 B of which nearly half would likely exit the economy. 
    7.5%  = $1.3 T
    10% = $1.75 T
    (btw – total ’13 Federal tax revenue = $2.8T)
     
     
    Of course there is always the chance that the Fed (or it’s agents) are actively buying Treasury’s in a shadow QE as some portion of the “foreign” demand.  And that’s a whole other discussion.
     
     
    Jus saying.

    • What are the US foreign debt holdings? At least 7 trillion (and probably much more unofficially). If we are all hanging on the same string, there is less incentive to cut it. I believe Japan is far more vulnerable at the moment. 

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