Gold Stocks: Rational And Profitable In 2015
Stewart Thomson | Dec 23, 2014 01:00PM ET
As the end of the year approaches, Gold is swooning a bit.
That’s the daily chart for gold. A broad and gently sloping uptrend channel has been established, with very volatile price action between the channel lines.
I expect gold to trade in this manner throughout most of 2015. Short term volatility will be high, but the price will trend higher.
Gold is working off what is an overbought technical condition, and should be poised to stage a significant rally by early January.
That’s the daily oil chart. While the odds of a brief and violent rally are growing, the overall fundamentals are horrific. Demand for oil is collapsing around the world, and supply continues to increase.
While a modest rise in the price of gold in 2015 might not sound very exciting, when coupled with a further collapse in the price of oil, gold stocks could suddenly become the darling of institutional investors around the world.
Gold companies are much more efficient now than they were just two years ago. Lower fuel prices coupled with even modestly higher gold prices could produce a violent move to the upside, for the entire gold stock sector.
Demand for gold from China and India should see another year of superb growth in 2015. While gold may decline for another week or two, that’s mainly due to technical and seasonal factors. The ebb and flow of Indian demand is based on religion, and December is viewed as an inauspicious time to buy gold.
With key physical buyers taking a rest, the price is a little soft. Also, Western investors tend to buy when the price of any asset is high, and sell at a loss each December. They are adding to the gold price softness now.
I expect Chinese demand in 2015 to increase substantially. Trading volume on the Shanghai Gold Exchange (SGE) is experiencing truly dramatic growth, year after year. My subscribers know that I’ve predicted that volume on the SGE will surpass COMEX volume by early 2017.
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Gold is clearly the ultimate asset, and it should offer the ultimate in stability to conservative investors for the next decade. Aggressive investors should focus on gold stocks.
Unfortunately, the outlook for the American stock market is much less rosy than it is for gold. Mainstream media claims that debt-soaked consumers working multiple part time jobs are somehow the “economic leader” of the world economy.
Now, the US stock market has lost a prime engine of earnings growth; oil. Healthcare and defensive stocks are keeping the huge stock market rally alive, but the impact of much lower oil prices won’t be felt for another quarter or two.
Technically, healthcare stocks look headed for trouble.
This monthly chart of biotech ETF Market Vectors Biotech (NYSE:BBH) shows a rapidly deteriorating technical situation.
I think that the month of December in 2015 will see Western investors back at the “tax loss trough”, selling most of their US stock market investments.
American GDP numbers will be released this morning. With most of India’s gold buyers in “quiet mode” this month, that report could push gold to my $1150 - $1160 short-term target area, and provide a short term boost to the US stock market.
US economic data generally has only a short term effect on the gold price. The long term price is determined mainly by the demand from China and India, compared to supply from mines and Western entities. Once the Western funds and retail entities have sold most of their gold, I expect Chinese and Indian jewelers to begin tapping Western central banks for the gold they hold, since mine supply appears to be peaking.
In the Western world, good economic data causes seemingly rational economists to make very irrational statements about gold. In contrast, in China and India, good economic news spurs gold demand. People celebrate the good news, by buying more gold!
As the West becomes more irrelevant to the global gold market, the questionable statements made by Western economists about gold will likely be ignored by most professional investors.
I doubt there will be much gold left anywhere in the West by the year 2050. Crypto currencies like (bitcoin) are more suitable as central bank reserve assets than gold. Rather than being held as useless bars by bankers and government bureaucrats who can’t be trusted, most gold should be held in the form of fabulous jewellery, by the citizens of the world. Also, he or she who has the most gold, makes the most rules. The citizens should make the rules, not bankers and “Gmen” and in time they will.
The Swiss government just released that country’s latest import and export statistics, for the month of November. I’ve highlighted a few key numbers from that report.
While the United Kingdom did import about 64 tons of gold, it exported about 109. While gold price enthusiasts may be a little disappointed with the numbers from China, I should mention that Hong Kong also imported about 34 tons.
In 2013, Chinese demand surged far above 2012 levels, but Western exports overwhelmed Chinese and Indian imports, and the price declined. In 2014, demand roughly matched supply, and the price was neutral. By late 2015, I expect Chinese and Indian demand to place noticeable stress on available supply, and the price should begin moving aggressively higher.
That’s the daily Market Vectors Gold Miners (ARCA:GDX) chart. Gold stocks are my “trade of the year” for 2015. Like gold, GDX is working off an overbought situation on the chart. There’s a bull wedge pattern in play. In the very short term, US economic data today could create panic selling, by Western gold stock shareholders that respond to that data with irrational action. With the Indian “titans of ton” quiet in December for religious reasons, the price movement in many gold stocks could be a bit frightening, but only for a few days. I’m a buyer of all irrational selling, and I think the entire Western gold community can look forwards to a very rational and profitable year, in 2015!
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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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