Gold's New Friend: The Swiss Franc
Stewart Thomson | Jan 20, 2015 11:07AM ET
While I predicted a huge rally in gold would usher in the new year of 2015 in a spectacular way, the top bank economists have failed again.
Most of them predicted, “No rally for gold!” Their dire predictions in 2014 all failed to materialize, and this year they are off to an even worse start.
The bank economists, quite frankly, look ridiculous. They clearly need to reset their thinking about the powerful demand coming from billions of Chinese and Indian citizens, or they risk turning themselves into clownish figurines.
The daily chart for gold looks spectacular. Note all the buy-side support lines that I’ve highlighted on this chart.
Here is another look at the daily gold chart. Note the green trend line. The breakout above that line will attract a large number of technicians and momentum-oriented hedge funds.
The commercial traders are shorting gold into this strength, but I suspect they may end up booking heavy losses on this trade. They don’t lose often, but they appear to be in some serious trouble here.
Chinese hedge funds have emerged as a new potential threat, to the Western bank dominance of the world’s metals markets.
It’s impossible to know if these giant Chinese funds are running long gold/short copper trades of size. If they are, the Western banks may decide to fold on their short gold positions, rather than risk even bigger losses.
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Gold is up again this morning, as Indian wedding season has fuelled what the media is rightfully calling “frantic buying”.
Chinese New Year buying is also extremely strong. I was a buyer of fine 24 carat jewellery yesterday, from my favourite Chinese jeweller. The mood in the store was jubilant.
A third force that is bullish for gold has unexpectedly appeared, which is the Swiss franc’s mauling of the U.S. dollar. The franc has a stellar track record of being a hard currency, and a key lead indicator for the price of gold.
That’s the monthly chart of the dollar versus the franc. The dollar has essentially imploded.
Entire brokerages and funds have been destroyed, as the dollar has gone into “meltdown mode” against the franc. As painful as it’s been for these dollar bugs, I think there’s much more pain to come. Here’s why:
There’s a massive sell signal on the 14,3,3 Stochastics series on that monthly chart. The dollar has already tested its 2011 lows against the franc, and I think it’s going to break them.
Mainstream media continues to boast of a “dollar bull market”, but against the gold-related currencies, the dollar is collapsing. That’s the weekly chart of the Indian rupee against the dollar.
There’s a massive inverse head and shoulders bottom pattern in play, and most indicators and oscillators are flashing beautiful buy signals. I’m predicting the rupee will become the most powerful fiat currency, in the history of the world. The dollar might be able to put a “whuppin’”on a reincarnated Greek drachma, but against the franc and the rupee, it looks ready to incinerate.
Most of the emails I’m getting from the global gold community are generally bearish. That tells me that the rally in gold can become much stronger than it already is.
My suggestion to the struggling bears is to throw in the towel, and book a plane ride to India. Most Western gold bears probably need to experience Indian gold demand firsthand, to understand its titanic power.
How can anyone be gold-bearish now, against the background of Indian wedding season, Chinese New Year, and the franc’s mauling of the dollar?
Over the past few months, truly enormous volume has appeared in many key gold stocks. That’s the Market Vectors Gold Miners (ARCA:GDX) daily chart. I love the price action. It’s solid. Also, the ascent is made for Goldilocks; not too slow, and not too fast.
In 2014, the early rally in gold stocks was led by junior stocks. This one is led by the seniors, which suggests much bigger and stronger players are the buyers. The world gold community should feel “amped” this morning, as they turn on their quote machines!
I’ve suggested that a “changing of the guard” is taking place in the gold stocks sector, with large institutions buying stock from disappointed retail resource investors. There is record-setting volume in play, on the GDX chart.
The push into gold stocks by big value-oriented players is likely forcing bearish hedge funds to exit their naked short positions. On that note, please click here now. Institutional heavyweight Morgan Stanley is clearly very positive about Australian mining stocks. I think their enthusiasm, and their buy orders, will quickly spread to most of the world’s major gold stocks.
That’s the daily silver chart. Just as junior gold stocks are lagging the seniors (which is bullish for the sector), silver is bullish, but not racing ahead of gold. That’s because this is not a Western fiat collapse oriented bull market. It’s a gold jewellery bull era,and investors need to roll with the golden changes! Silver will do very well, following gold steadily higher, with gains that are not a flash in the pan, but here to stay. Have a spectacular week, and thanks for your time!
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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