Gold: Institutional Stampede Into Miners Ahead?
Stewart Thomson | Jan 16, 2019 12:08AM ET
“Some analysts believe China could deliver 2 trillion yuan ($296.21 billion) worth of cuts in taxes and fees, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects.” – CNBC News, January 15, 2019.
China’s economy is likely to grow in the 6.2%-6.5% range for 2019 and the stimulus is inflationary. While that growth is the slowest pace in almost thirty years, it’s still “head and shoulders” above the horrifying meltdown in growth that the United States is likely about to experience.
Goldman is predicting a meltdown in US earnings growth from 20%+ in 2018 to just 3% to 6% for 2019!
Goldman’s heavyweight analysts are also predicting that US GDP growth melts towards 1% by the third quarter of this year. This, while Morgan Stanley is predicting an “earnings recession.”
Germany’s economy is already slipping towards 1% GDP growth and EU earnings are unlikely to grow more 5% in 2019.
Interestingly, most big bank economists are predicting an uptick in inflation will accompany the slide in Western earnings and GDP growth. Clearly, all roads lead to…gold!
Gold continues to perform remarkably well at a time when a substantial pullback would be expected. Conspiracy buffs are waiting for the “banksters” to smash the gold price. Where is the smash? Well, it doesn’t exist. All that’s happening is mild consolidation.
A pullback to key Fibonacci retracement lines in the $1250-$1260 area would be healthy but even that may not happen. Current technical action indicates a very healthy gold market.
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Gold has raced to an all-time high against the Australian dollar. There’s a loose triangle pattern in play. The target of that pattern is well above $2000.
It’s very important for gold stock enthusiasts to make some effort to own at least a few Australian gold stocks that trade on Australian markets. Many of these stocks have been in powerful uptrends for years and are likely in a new acceleration phase.
Gold is also doing well against the British pound and the Canadian dollar. Most of the world’s gold stocks trade on the Canadian stock market and a lot of them are beginning to show good technical action.
The paint is barely dry on the Barrick-Rangold (NYSE:GOLD) merger, and now Newmont (NYSE:NEM) is buying Goldcorp (NYSE:GG)!
When mergers or takeovers happen, I like to see the new entity prove itself technically, with momentum. In the case of Barrick, I’ve suggested that investors need to see a weekly close of $14 for that to happen.
For Newmont, I need to see a weekly close of $36. That would suggest institutional money managers are endorsing the new entity. Once that happens I would be a buyer of every dollar of price weakness in the stock.
Both Barrick and Newmont are key VanEck Vectors Gold Miners (NYSE:GDX) components. I’m impressed with the relative strength of GDX in the face of the softness in both those stocks.
While GDX “should” pull back to about $20 from the current price zone, the technical action is superb. Note the fade in volume as price drifts sideways in the $21.50 resistance area. That’s extremely positive. Eager accumulators should be buyers of every ten cents of price weakness between $21 and $20.
Once the current consolidation ends, I’m anticipating a surge to the $23 price area… on strengthening volume.
Goldman’s influential gold market analyst Jeff Currie has a new $1425 target for gold in 2019. That’s an important number, because most gold and silver miners have made a significant effort to reduce their AISC (all-in sustaining cost) numbers.
A gold price in the $1400+ area would turn many of these companies into “cash cows”… and do so at a time when most companies in America face an earnings and revenue meltdown.
An institutional stampede into gold stocks in this new and emerging situation is not a pipe dream. It’s becoming more of a probable event than just a potential scenario.
My weekly gold chart shows that $1300 resistance is merely a pit stop on the road to the inverse H&S bottom neckline at about $1392. If Goldman’s $1425 target price is achieved in 2019, it would mean gold has traded well above the neckline, ushering in a new target zone of about $1750. That $1750 price would turn most gold miners into not just cash cows, but cash cow superstars!
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