Gold's Leading Indicators: PBOC, Barrick
Stewart Thomson | Apr 28, 2015 11:48AM ET
- Gold buy-side HSR: $1033, $887.
- Gold sell-side HSR: $1320, $1340.
- HUI buy-side HSR: 155. Sell-side HSR: 250, 360.
- Dow buy-side: 14,200. Sell: None.
- Silver: buy-side: $15.20. Sell-side: $18.17, $22
- SPDR FUND (GLD-NYSE) Tonnage: 739
- COMEX Gold Option Expiry Day: May 26
- Next FOMC Meet: Apr 28 -29
While the benchmark (ARCA:GDX) and (ARCA:GDXJ) ETFs are struggling to stage clean upside breakouts, many individual gold stocks are staging dramatic rallies.
That’s the daily chart for one of the world’s top ten gold producers, Newcrest Mining Ltd (ASX:NCM).
The stock has been rallying aggressively. A breakout from a bullish inverse head & shoulders continuation pattern appears to be in play. Newcrest may be about to begin another major rally!
That’s the daily chart for Newmont Mining (NYSE:NEM), another top gold producer.
While gold stock enthusiasts may want to see Newmont blast to new highs immediately, I think it’s more likely to form a bullish consolidation pattern, much like Newcrest did, before taking out the highs in the $26.67 area.
That’s the GDX daily chart. Note the black downtrend line in play. As more individual stocks begin to act like Newmont and Newcrest, I expect GDX to rally above that key trend line, and attract some nice hedge fund buying.
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GDXJ has already broken above its downtrend line, but the most likely scenario is for a slow but steady upside grind. That’s the GDXJ daily chart. With the emergence of the love trade (gold jewellery) as the dominant gold price driver, gold is gaining more respect as an asset, and it is trading with much less volatility.
That’s the good news. The bad news is that gains will be muted, until Chinese and Indian demand is universally recognizedas substantially exceeding mine and scrap supply.
Still, fear trade enthusiasts should keep a close eye on the actions of the PBOC (China’s central bank). Most major actions of the PBOC are not related to the love trade. They’re related to the fear trade.
A growing Chinese QE program, a possible announcement of higher official gold reserves, and/or a public endorsement of gold by the PBOC could create a very powerful rally in gold, and an even bigger one in gold stocks!
That’s the GDX one minute bars chart. Without the “juice” of a PBOC or other fear trade announcement, gold stocks will continue to grind their way higher, but probably in a manner that provides little emotional satisfaction each day.
For the average investor, it was a bitter-sweet day yesterday, because a lot of the day’s gains disappeared in the last hour of trading, but GDX was still up about two percent on the day!
That’s probably the world’s most important gold stock chart right now. It’s the daily chart for Barrick Gold (NYSE:ABX).
Barrick is a key GDX component stock, and it’s flirting with the neckline zone of a massive inverse head and shoulders bottom. The pattern has two heads, and the right shoulder appears to be about to form.
Barrick’s chairman John Thornton apparently bought more than 350,000 shares in the open market in March. That’s a serious commitment to the company, and to higher stock prices!
The next Fed meeting begins today. I don’t expect anything dramatic from Janet herself, but Fed governors and presidents like to voice their opinions in the mainstream media as the meeting takes place.
That can rattle the gold market a bit, and it may be one of those statements that creates the right shoulder on the Barrick chart. Aggressive investors may wish to consider purchasing Barrick call options on any price weakness that occurs this week.
Any major fear trade event can theoretically drive gold hundreds, or even thousands of dollars higher. Having said that, without the existence of the love trade, gold would have collapsed in 2013 much like it did in 1980.
It would probably be languishing in the $300-$800 range now, and stay there until the next financial crisis triggered central banks to either flood the system with liquidity, or revalue gold itself.
Apple (NASDAQ:AAPL) plans to double the number of its stores in Greater China (China, Hong Kong, Taiwan) by mid-2016, and I think sales there will easily surpass sales in America by early 2017.
The point I’m making is not about Apple. It’s about the growth of the love trade for gold. If China engages in a major QE program, its stock market could soar higher for years, and citizens would celebrate by buying vastly more gold jewellery.
Nothing the Fed does in its meeting this week will change Apple’s plans for massive sales growth in China, and nor will it change the insatiable and exponentially growing appetite of Chinese citizens to own a lot more gold.
Attention silver enthusiasts: Silver staged a beautiful upside breakout yesterday from a bull wedge pattern, and its holding the gains nicely! Note the fabulous set-up on the 14,7,7 Stochastics oscillator at the bottom of the chart. I affectionately refer it as “Tony the Tiger”, and Tony is definitely roaring “Buy”!
That’s the daily chart of the silver stocks ETF, (NYSE:SIL). Note the RSI oscillator at the top of the chart, and the nice symmetrical triangle breakout occurring. Silver is my second largest holding, and silver stocks are my main focus at the current time, to play the next move higher in the precious metals market!
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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