Stewart says the price of gold continues to be driven by the same macro-economic drivers as the stock & bond markets, plus this initial driver for gold…
Graceland Updates 4am-7am
April 16, 2019
- Global stock and bond markets continue to be driven by the macros of a possible trade deal, accommodative central banks, weaker earnings, continued stock buybacks, and rising government debt.
- Gold is driven by these same macros, but it has the additional price driver of seasonal Chindian physical market demand.
- It’s currently the soft season for physical demand, but the rest of the price drivers are quite positive. Most big bank analysts have gold price targets of about $1400 for 2019.
- Unfortunately, they don’t see gold reaching their target prices until seasonal physical demand strengthens later in the year.
- Check out this key USD vs yen chart. During the September-December period in 2018, global stock markets tumbled as the Fed put pressure on the stock market with higher rates and QT on “autopilot”.
- Risk-on markets (stocks and the dollar) tumbled, and risk-off markets (yen and gold) soared. Then a dramatic about-face by the Fed in late December sent the dollar and stocks soaring.
- Note that gold continued to rise until mid-February even though stocks and the dollar rallied. That’s because of strong Chinese New Year physical market demand.
- The bottom line: When push comes to shove, it is the physical market that ultimately determines the actions the COMEX commercial traders take and that determines the price trend.
- In 2019, from February to the current time frame, risk-on markets have continued to strengthen, physical market demand continues its seasonal softness, and so gold meanders sideways with a slight downwards bias.
- Please click here now. Double-click to enlarge this chart of DIA-NYSE, a Dow proxy ETF. From a technical perspective, the US stock market has meandered sideways since the US government launched a wave of tariff taxes.
- Then it began crashing when the Fed became more aggressive about rate hikes and QT in the late stage of the current business cycle.
- The market can probably rally to around where it would have been without the “tariff tax tantrum”, but most mainstream analysts don’t see much more than 2% GDP growth over the long term for the US economy.
- It could be said that in America there are a few thousand modestly-socialist politicians and more than 300 million capitalist citizens. Likewise, it could be said in China and India there are a few thousand fully-socialist politicians and 3 billion capitalist citizens.
- Regardless of how they vote, citizens in all three countries generally work hard to make ends meet and to build quality products… while being controlled by debt-worshipping politicians.
- Chindian citizens are in the early stages of their latest empire cycle, and US citizens are in the late stages of their first empire cycle. A gold-orientation of the gargantuan Chindian population essentially guarantees that gold will quickly become a mainstream asset for global investment.
- That’s because there is only about 1% annual growth in mine supply while Chindian citizen wealth is growing at about 6%-8% each year. Gold demand growth mirrors citizen wealth growth.
- In America, the Fed’s accommodative stance can only buy the government limited time. The rate of annual US government debt growth is very similar to Chindian citizen wealth growth.
- On that note, please click here now. Double-click to enlarge. I’m predicting that the gold price drivers of the US government debt behemoth and the Chindian wealth trade are set to collide… in this weekly chart inverse H&S neckline zone at about $1450.
- That should push gold towards the $2000 area neckline zone of an even bigger inverse H&S pattern that targets the $3000 price area.
- Please click here now. Double-click to enlarge this short-term GDX chart. I’ve highlighted my www.guswinger.com buy and sell signals on the chart. I buy NUGT when there’s a GDX buy signal and buy DUST when there is a GDX sell signal.
- This proprietary system is mechanical and investors are almost always in a trade. The current daily chart price action in GDX is boring at best and can be demoralizing, but for swing traders, almost every day is exciting! The bottom line:
- During the strong season, core positions will make the most money for investors in the gold market. During the weak season (now), a solid short-term trading plan reduces negative emotion, limits drawdowns, and puts money in the bank.
- Please click here now. Double-click to enlarge this daily gold chart. Some investors may be concerned about the fourth touching of the $1288 June futures and $1280 cash market floor, but my question to them is:
- Is this a floor, or is it a sponge? The gold market now is vastly different (both fundamentally and technically) than it was when the price touched the $1523 area for the fourth time in 2013. Investors should think about modest price softness on a $1280 area sponge rather than possible sharp weakness at a $1280 floor. The $1450-$1400 price zone will become a beautiful floor as the gargantuan Chindian wealth trade and US government debt behemoth of doom collide!
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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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