Gold: Main Street Leads Wall Street
Stewart Thomson | Jan 19, 2016 11:16AM ET
As the third trading week of 2016 gets underway, gold continues to trade with great stability, regardless of whether global economic news appears to be good or bad.
This is the hourly bars gold chart.
When gold was languishing in the $1060 area, I suggested it would rise to about $1110, and then pull back to the neckline of a double-headed inverse head and shoulders bottom. That’s exactly what happened.
From a purely technical gold chart perspective, gold “should” now rally back to the $1110 area. That’s the US dollar versus yen daily bars chart.
Gold has a very strong tendency to trade against the dollar like the yen trades against it. In the big picture, the good news is that the dollar is showcasing a huge head and shoulders top pattern against the yen, and a major uptrend line has been decisively penetrated to the downside.
In the short term, unfortunately, the dollar is likely to rally back to the broken trend line, and that could put some temporary pressure on the price of gold. Gold is likely to ease to $1033 - $1045, if the dollar rallies against the yen.
From there, the largest gold rally seen in many years is likely to occur, as the dollar gets crushed by safe-haven buying of the yen.
Western gold community investors should be aggressive gold buyers, regardless of any pain they feel, if this gold price pull back occurs.
This is the Dow daily bars chart. China just announced Q4 growth of about 6.8%, and global stock markets are rallying on the news.
In America, GDP growth for Q4 of 2015 may come in well under 1%, with the Atlanta Fed already estimating it will be about 0.6%, a truly horrific number.
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Regardless, the US stock market does often follow the Chinese stock market, and a short term US stock market rally can couple with a modest dollar-yen rally, to put some additional short term pressure on gold.
This (N:FXI)-NYSE daily chart of the Chinese stock market is flashing what I would call a buy-side volume alert.
All US stock market crashes were significant buying opportunities, when America was the world’s leading economic empire. Now, all
Chinese stock market meltdowns are equally important buying opportunities, as China steadily moves to take the global economic “leadership baton”.
As the world’s “ultimate asset”, I expect gold to generally perform well, regardless of whether China’s economy surges, crashes, or drifts sideways.
This is the daily bars oil chart. The end of oil-related sanctions against Iran has opened the door to a “buy the news” oil market rally.
Unfortunately for global stock markets and the dollar versus the yen, Iranian supply is likely to add to the global oil supply glut, taking oil and global stock markets into a fresh decline. That will create another surge of yen safe haven buying, and fuel a significant rally in the price of gold.
The year of 2016 is likely to be better for bullion than for gold stocks, largely because of the yen acting as a safe haven against the dollar, but gold stocks should be accumulated now, in preparation for the rise of American stagflation in 2017.
As oil recovers later this year, I expect Janet Yellen to keep pressure on global stock markets with more rate hikes. A lot of analysts think she is focused on the US stock market, but I would argue that was more the focus of Ben Bernanke.
I’ve argued that Janet Yellen is a much bigger friend of Main Street than Wall Street, and her bold taper of QE to zero, which I predicted, bears that out. She also appears to have serious concerns, and rightfully so, about the “debtaholic” mentality of the US government.
I’ve stated that “Rate Hikes Rock”, because they empower Main Street and put pressure on the US government to change its ways, or face gold revaluation.
Also, savers finally have an incentive, one that will grow, to put money in the bank, where it can be loaned out. That puts upwards pressure on money supply velocity, increasing inflation. Janet Yellen has helped stabilize the price of gold, with her taper of QE, and with just one rate hike.
More rate hikes are coming, many more, and I don’t think Janet Yellen cares how loudly the US government and Wall Street whine about it.
This is the daily bars (N:GDX) chart. As Janet empowers Main Street and produces stagflation, gold stocks will become the “go-to” asset for institutional money managers.
Most gold stock analysts are trying vainly to predict either a “final low” for gold stocks, a fresh decline, or some other kind of price event. I’m not sure that such an endeavor builds any wealth. It’s more important that gold stock enthusiasts simply buy systematically into the current “seeds of stagflation” theme, so they benefit when the seeds become trees and flowers!
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