The Fed & China: Rally Time for Gold
Stewart Thomson | Jul 25, 2023 03:32PM ET
While tomorrow’s US interest rates announcement can help push gold to key short-term buy or sell zones, the big picture for gold is mainly about Chindian citizen demand versus mine supply.
Western gold bugs wait eagerly for BRICS governments to announce a gold-backed fiat to compete with the dollar. The citizens of China don’t have time to wait for governments who move slower than Godot when it comes to doing anything good.
Chinese citizens have already made gold their de facto personal currency and central bank. Here’s the bottom line: Demand for gold is surging in China and that’s putting a major floor under the price.
Chinese citizens are also the world’s biggest gamblers. A surging stock market puts investors in a joyous mood, and they celebrate by buying enormous amounts of gold.
A massive inverse H&S pattern is in play for the Chinese stock market.
The iShares China Large-Cap ETF (NYSE:FXI) is essentially the “Dow” of China. A surge from the right shoulder low could begin today and after some volatility around the Fed announcement, gold is likely to follow the FXI.
In addition, if Jay’s speech is dovish, then gold, silver, and the miners could quickly look like Apollo rockets headed for a fiat priced moon.
China is ready to transform from a property-oriented economy into what is best described as a super-sized Silicon Valley. That’s going to put an even bigger floor of demand under the price of gold.
Get The News You Want
Oil is breaking out to the upside. My $93 medium-term target (at two converging trendlines) looks increasingly likely to be hit. Surging oil means surging pump gas, and oil is also the biggest component of most commodity indexes and ETFs. Institutional buying there can drive up the price of other commodities.
Meantime, the Fed is unlikely to change its increasingly dovish stance until after oil and food commodities have moved substantially higher. These items are viewed as “too volatile” to give an accurate picture of inflation… until US citizens start screaming that they can’t afford pump gas and food. The dovish stance is silly, but it’s very good for gold.
The fabulous weekly chart for gold. My 14,5,5 Stochastics oscillator is oversold and almost sporting a crossover buy signal. In the summer of 2022, Stochastics also flashed a buy signal. It failed briefly, before flashing another one that ushered in a massive $400/oz rally for gold.
If this buy signal fails, the $1900 low is a magnificent entry point for gold, silver, and the miners. Because it’s a previous low, it’s also ideal for stoploss enthusiasts who can keep a stop at $1890, $1885, or $1880. If gold instead surges to an all-time high (likely), the next big buy zone for gold market investors would be on a pullback to $1975.
The daily chart shows a big base/reversal pattern in play. It began forming in May and it’s almost certainly a product of both an increasingly dovish Fed and the increasingly massive Chinese citizen floor of demand. A daily focus on the big picture is critical for investors as inflation, recession, the 2021-2025 war cycle, a wildly overvalued stock market, debt ceiling horror, and empire transition dominate the investing landscape.
The smart money commercial traders added a lot of short positions at the $1980 resistance zone. If most of them are covered off by the end of the Fed meet and announcement, and I think they will be, the “rally time for gold” cake is likely iced.
What about the miners? The silver futureschart. There’s a nice H&S bottom in play. Even if the pattern fails, basis Edwards/Magee the final low is near. Silver stocks look ready to soar.
The incredibly positive daily GDX (NYSE:GDX) chart.
At the April highs, the technical situation was essentially the opposite of what it is now; weekly chart oscillators were overbought (now they are oversold), and sentiment (basis the BPGDM) was also overbought. Now it’s oversold. Rather than cautionary as in April, overbought Stochastics on gold stock daily charts is bullish.
Also in April, the economic news and mood in China was negative, and the outlook for gold demand there was questionable. Now, a huge Chinese stock market rally looks imminent and the demand for gold is solid. The bottom line for mine stock investors is this: Buy this dip and be prepared for what could quickly become…a very golden lunar trip.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.