The twenty-year bear market in gold stocks against gold was caused by a “perfect deflationary storm”. That storm itself was caused by a bear market in money velocity and bank loan profit margins. The storm is ending. Inflation is beginning to creep higher, and doing so at a time when the US business cycle is peaking.
A rate hike that follows Brexit turmoil could put the Dow into crash mode, and send gold straight towards $1400.
While gold should now consolidate Friday’s gains over the next couple of days, the consolidation may only last for the next few hours!
Horrifically, the institutional surge into the yen and gold safe havens in the first five months of 2016 may only be an appetizer of what lies ahead.
Gold is trading in a broadening formation because institutional investors are beginning to sense a loss of control, emanating from both government and central banks.
The current gold price correction is exactly what “the golden doctor has ordered”, as the gold price meanders calmly down towards key support that begins near $1225.
In about a month, I expect the gold price to begin rising again, as buyers there return to the market with size that is large enough to send shock waves throughout the Western gold community…
Was the entire gold price rally during the 2000 – 2011 time frame really just a giant bear market rally? Well, when viewed on the gold versus money base and inflation-adjusted price charts, the answer is probably: Yes.
The good news is that rising inflation is now launching a new major bull market for gold in inflation-adjusted prices, and against the US money base. That’s why gold stocks are staging such a stunning performance against all fiat currency, and against gold too!
If gold is beginning a fresh inflation-adjusted bull market, gold stocks are likely only beginning what could be a multi-decade period of dramatic outperformance against fiat currencies and gold bullion.
There’s a very large inverse head & shoulders bottom pattern forming in gold, and I expect the right shoulder low could occur around the April 19 time frame.
While anything is possible in any market at any time, including new lows for gold, I think the Western gold community is starting to look pretty good here, given the sizable institutional buying taking place “across the board” in gold stocks.
Because a lot of that buying is value-oriented, even if gold did “impossibly” go to a new low, the substantial institutional commitment to gold stocks that is in play now is likely to accelerate. Simply put, there’s a wave of confidence sweeping through the institutional investor community about gold stocks, and I think it’s time for the Western gold community to grab an extra gold stocks surfboard, and have some fun!
Gold has staged a majestic upside breakout. My $1320 target is coming closer.
It’s important to understand the difference between the gold market now, and during the 2009 – 2011 rally:
All lights for gold are green, and rather than beginning a correction, gold may be poised to intensify its rally.
India may cut the import duty on Sunday night.
If the dollar declines further against the yen, while an Indian duty cut occurs, gold could stage a powerful “overshoot” move, well beyond the $1310 target zone, and closer to $1400.
The chart below is arguably the global financial markets’ “chart of the year”. The massive bullish wedge pattern in play on this daily bars GDX chart looks truly spectacular.
Note how close GDX is to staging a significant upside breakout above the supply line of the wedge! Within GDX itself, many of the component stocks are staging massive upside rallies.
That suggests a GDX breakout is now imminent.
The massive bull wedge pattern in play suggests than an “institutional awakening” is at hand for the gold stocks sector, as the oil supply glut and Janet’s rate hikes send global stock markets into a financial gulag. I’ll dare to suggest that equity-oriented money managers are soon going to view gold stocks as asset class champagne!
In the big picture, the good news is that the dollar is showcasing a huge head and shoulders top pattern against the yen, and a major uptrend line has been decisively penetrated to the downside.
In the short term, unfortunately, the dollar is likely to rally back to the broken trend line, and that could put some temporary pressure on the price of gold. Gold is likely to ease to $1033 – $1045, if the dollar rallies against the yen.
From there, the largest gold rally seen in many years is likely to occur, as the dollar gets crushed by safe-haven buying of the yen.