Reuters/Tamara Abdul Hadi/Files

Reuters/Tamara Abdul Hadi/Files

Ben Bernanke believed that the financial crisis of 2008 produced the need for strong but temporary action to be taken by the Fed. His focus was on providing liquidity to the financial system, as a substantial but temporary strategy.
In contrast, Janet Yellen believes in the Phillips Curve. In the 1950s, William Phillips suggested that there is an inverse relationship between inflation and unemployment, and his ideas are used extensively by Keynesian economists.
The bottom line is that Dr. Yellen is a strong Keynesian who is now in charge of America’s central bank. She believes that real unemployment will fall significantly, if she raises the inflation rate. (Yes, you read that correctly)
That has the attention of powerful institutional money managers, and it should have the attention of everyone in the gold community.

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Submitted by Stewart Thomson:

  1. For the past few years, the citizens of China and India have been in the “gold buying spotlight”. I’ve hinted that the citizens of Japan could soon become another source of sizable demand.
  2. In contrast to their “debt-a-holic” government, Japanese citizens tend to shun the use of debt. Over the past year, the actions of Shinzo Abe and Haruhiko Kuroda have resulted in a tumbling yen, and the official inflation rate has started to rise.
  3. The citizens of Japan have started to increase the amount of gold they are buying, to protect themselves. Over the next six months, I expect that trend to accelerate significantly.
  4. Gold demand in Japan jumped threefold in 2013 as prices slumped and investors sought refuge from Prime Minister Shinzo Abe’s campaign to stoke inflation and weaken the yen, the World Gold Council said. Demand for jewelry, bars and coins increased to 21.3 metric tons last year from 6.6 tons in 2012….” – Bloomberg News, February 18, 2014.
  5. I’ve argued that gold entered a jewellery-oriented “bull era” in 2013. I’ve predicted that consistent monthly demand for gold in the form of jewellery, just from China, Japan, and India, will surpass the entire monthly global gold supply.
  6. On that note, about 17 tons of the reported 21.3 tons of Japanese total demand was in the form of jewellery.
  7. Compared to the demand from China and India, Japanese gold demand is tiny, but Abenomics has barely started, and the Japanese inflation rate is still very low.
  8. The per capita GDP in Japan is about $35,000 a year, and the Japanese economy is the third largest in the world. That translates into massive gold buying power.
  9. The QE experiment in Japan is extremely dangerous because the government debt versus GDP ratio is much higher there than in America. Cost-push inflation could begin much more quickly than most analysts are anticipating.
  10. The combination of a debt-obsessed Japanese government and debt-averse citizens could soon produce an almost maniacal charge into gold, by millions of frightened Japanese savers.
  11. In America, the appointment of Janet Yellen to head the US central bank could also prove to be a “golden game changer”.  Gold investors should focus on a subtle difference between the economic philosophies of Dr. Yellen and Dr. Bernanke.
  12. Dr. Bernanke believed that the financial crisis of 2008 produced the need for strong but temporary action to be taken by the Fed. His focus was on providing liquidity to the financial system, as a substantial but temporary strategy.
  13. In contrast, Dr. Yellen believes in the Phillips Curve.   In the 1950s, William Phillips suggested that there is an inverse relationship between inflation and unemployment, and his ideas are used extensively by Keynesian economists. To learn more about the Phillips Curve please click here now.
  14. In 2007, as head of the San Francisco Fed, Dr. Yellen authored a significant essay that was titled, “Implications of Behavioral Economics for Monetary Policy”. It focused on the Phillips Curve and the use of it by the central bank as a “workhorse”. If you want a copy of that essay, send a request to stewart@gracelandupdates.com and I’ll send it to you.
  15. The bottom line is that Dr. Yellen is a strong Keynesian who is in charge of America’s central bank. She believes that real unemployment will fall significantly, if she raises the inflation rate. That has the attention of powerful institutional money managers, and it should have the attention of everyone in the gold community.
  16. In the short term gold is massively overbought, from a technical perspective. Many gold enthusiasts became almost giddy with the prospect of an “ultimate bottom” being completed in the $1180 area. Gold could suffer a sharp and frightening sell-off right now, from this key sell-side HSR (horizontal support and resistance) zone. That decline would help create a large and bullish inverse head and shoulders bottom pattern.
  17. On that note, please click here now. That’s the daily gold chart. Note the “nosebleed” on my stokeillator at the bottom of the chart. The lead line sits at about 93, which is where many violent sell-offs have occurred in the past.
  18. The entire $1335 – $1360 price zone represents significant sell-side HSR. If gold is going to challenge the August highs in the $1432 area, it would attract a lot of technical buyers if a head and shoulders pattern is clearly apparent on the chart.
  19. Please click here now. This daily silver chart shows that silver has started to outperform gold on days when gold rises. That tends to happen near the end of a minor trend move. When the stokeillator moves down and gives the next buy signal, I expect silver to continue to outperform gold, which is good news for silver bugs who have shown tremendous patience with this mighty metal!
  20. When a financial crisis is the focus of institutional money managers, they tend to buy gold bullion. Recently, gold stocks have done much better than gold. That’s likely because institutional money managers are aware of Dr. Yellen’s tendency to endorse a higher inflation rate.
  21. Gold stocks have arrived at some minor sell-side HSR in the $27 area. To view the GDX daily chart, please click here now.   While I’m cheering for gold stocks to continue to rally, it’s prudent to book some light profits here. Like pruning a fruit tree produces more fruit, investors should prune profits from their gold stocks!
  22. A pullback to the $24 area might be disappointing, but it would only add to the bullish look of the chart. That would attract more technical buying.
  23. Since the year began, junior gold and silver stocks have outperformed every asset class. On that note, please click here now. This daily GDXJ chart suggests that institutional money managers are aware of the need to find much more gold, to supply the buyers in the gold jewellery era!
  24. Note the inverse head and shoulders bottom pattern in play. That’s very bullish. In the short term, the stokeillator is very high, so a decline is to be expected. On a pullback to the $38 area, I’d like to see strong buying from the gold community!

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Thanks!  Cheers St

Stewart Thomson

Graceland Updates

  1. In 6yrs time since ’08 “foreign” holders of US Treasury debt have increased their holdings from $2.4 T (Jan ’08) to $5.8 T (Dec ’13)?!? A 150% increase while the Fed sold/ did not roll $800 B in ’08 (almost entirely in bills) to it’s present $4.2 T (2.25 T, all Notes/Bonds…$0 bills and $1.5 T MBS).
     
    So the Fed & “foreigners” have picked up $5.6 T of $7.2 T increase in Public Outstanding Treasury debt since ’08. This means Fed & “foreigners” have purchased $5.35 T of $6.2 T in new Notes / Bonds issuance & own 80% of total Public Outstanding Notes/Bonds.
     
    The “red flag” in this is this “buy the cleanest dirty shirt” argument is the Fed tapering. The Fed in it’s recent QE were buying nearly all medium term Notes / all Bonds (up to their 70% limit) but on their stated exit from QE, “Foreigners” who own $5 T+ (double the Fed’s holdings) would have seen rates would be rising and prices falling absent this buyer…typical “investors” they would have been selling to front run the Fed’s exit. The Fed would have known this taper would cause a rate shock. But no selling…no yields to the moon. Rather “foreign” holdings have hit a new record high as of December.
     
    Seems these “foreigners” are not typical “investors”. Upon the exit from the “market” of a buyer of 40% to 70% of issuance, “foreigners” are unconcerned. Typical “investors” would be concerned w/ the likelihood of losses.
     
    What’s fascinating about the “foreign” category in the TIC reports is that it only represents where the Treasury’s are purchased and held…not the nationality of the buyer.
     

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