1. Liquidity flows into or out of the “love trade” (gold jewellery) and the “fear trade” (inflation and financial system risk), are the two main drivers of the price of gold.
2. The strongest gold jewellery buyers are in India, and the election of Narendra Modi has already unleashed a huge wave of confidence amongst jewellers there. ‘Retailers added that the latest steps by the apex bank of allowing banks to offer gold loans and permitting more entities to import the precious metal were signs of encouragement. This could drive up overall demand by 5% to 7% in 2014 from last year’s level of 975 tonnes, said Manish Kedia, bullion retailer. Manoj Thakkar of bullion retailer Amrapali Industries said, “The premium on gold has gone down from $110 per ounce to $35 per ounce. The prices too have come down after the Reserve Bank of India provided conditional relief in gold imports restrictions by allowing Star trading houses to import gold. We are in for better times now.”’ –Mineweb News, Mumbai, June 2, 2014.
3. While El Nino could delay the arrival of India’s monsoon season by one or two weeks, an end to the import restrictions could unleash a tremendous amount of pent-up demand, more than offsetting the lost crop revenues. 
4. In the big picture, foreign investment is pouring into India. Last night, India’s central bank announced policy guidance, suggesting inflation will moderate and GDP growth will improve. As the economy strengthens, spirits are high, and this bodes well for the gold jewellery business during the second half of 2014.
5. In America, home of the world’s largest gold fear trade, signs of inflation are beginning to appear. The Fed uses an eight year business cycle, and the last few years of that cycle tend to be when inflation appears. 
6. The US economy is entering the tail end of the business cycle now.
7. On that note, please click here now . Seattle’s enormous increase in the minimum wage could set off a nation-wide surge in wages, which ishighly inflationary.
8. For a closer look at the Seattle plan, please click here now . 
9. Currently, most major money managers have a relatively similar outlook on major markets, including gold. If inflation begins to rise significantly over the next six months, significant disagreement about what that inflation means would almost certainly arise.
10. In turn, that disagreement would create a fair amount of bond market volatility. Substantial institutional liquidity flows into gold stocks is very likely in that situation.
11. Looking out over the next 7 months, both the love trade and the fear trade appear to favour the gold market bulls.
12. Please click here now . That’s the GDX weekly chart, and it’s clear that significant summer rallies are the norm for gold stocks, not the exception.
13. Look at the position of the 14,3,3 Stochastics oscillator. It’s very bullish. 
14. I would suggest that aggressive gold stock investors should be postured in a 70% -90% net long position. Personally, I’m 90% net long and in very buoyant spirits.
15. Please click here now . That’s the daily GDX chart. Note how little price erosion in gold stocks has occurred on a year over year basis. 
16. Compared to past years, the erosion is minor, and there’s an enormous (albeit somewhat rough) inverse head and shoulders bottom pattern in play.
17. Please click here now . This daily GDXJ chart looks good. There’s a nice bullish wedge forming, and my stokeillator (14,7,7 Stochastics series) has just flashed a crossover buy signal. 
18. The technical posture of gold stocks meshes well, with the Western world’s transition from deflation to inflation, and with the mindboggling changes taking place in India. 
19. The exactly launch point of a summer rally is likely impossible to predict, so I find it desirable to maintain a modest number of short positions. 
20. Also, the monthly US Employment Situation report will be released on Friday, and gold has a rough tendency to decline or trade listlessly in the week leading up to the release of the report. 
21. Is it possible that a substantial 2014 summer rally begins after the release of this key jobs report? I think so.
22. Please click here now . I’ve outlined a rough scenario for summer rally enthusiasts on this daily silver chart. I’ve suggested silver could move up to about $22. 
23. Much higher prices are possible if Western world inflation and Indian buying increase significantly, and I think that’s exactly what’s going to occur.
24. Please click here now . That’s the daily gold chart. Note the bullish position of my stokeillator at the bottom of the chart. A crossover buy signal appears to be imminent, and such signals tend to be followed by $50 – $150 rallies in the price of gold!

Jun 3, 2014
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com 
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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. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time.

Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an invetor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

There is a bizarre dichotomy between financial markets and the economy. According to Gillian Tett of the Financial Times, this stage of a global economic recovery would normally be associated with much more volatile stock markets as interest rates rise and there breeds a divergence of investor opinions on growth expectations. Instead lackluster economic growth reported for the first quarter in both Canada and the US are paired with muted market reactions and record low measures of both volatility and forecasted volatility in the days ahead.

This really is the first time investors have had to grapple with the question surrounding what role policy makers play in the financial markets. The shift between public to the private has many questioning whether the underlying economy on its own can assume this role. And naturally, this should be a point where the economy is reaching escape velocity (to borrow the words of superstar Bank of England, and former Bank of Canada Governor Mark Carney). Instead though, we are at a crossroads.

The sovereign bond market is telling a much different story than what is going on in the equity arena. While the S&P500 continued to make record highs through the final trading week in May, the US 10 year Treasury bond is sitting on its lowest yield in a year. Some analysts attribute this to the potential for credit easing in Europe pending future actions from the ECB Thursday of next week. Potentially, forward looking yield hungry investors are shifting across the Atlantic. But an additional scenario, again from the Financial Times this past week suggests China’s appetite for US debt is once again growing, having just recently peaked in November of last year. And with gold being the natural hedge to the US dollar, growing demand for Treasuries should be accompanied by stronger demand for the yellow metal from China.

Demand from Asia will always create a natural support for the price of gold. But given that growth in demand from China has been almost exponential, it’s hard to envision this will be the catalyst that sees the price of gold surge in the months and years ahead, accounting for the negative price action beginning in September of 2011. The price of gold, however, has two strong natural drivers, and they are inflation expectations and economic uncertainty. Economic uncertainty is almost an ex post or after the fact type of idea; it ads momentum to the market. Despite every doom and gloom analyst repeatedly trying to predict the next great recession since 2008, these past six years have illustrated their lack of skill in forecasting. Black Swans are a lot more apparent in hindsight.

It is inflation expectations, preceding actual future inflation that will sustain a rally in the price of gold. This did not occur immediately following the US Federal Reserve expanding their balance sheet. Inflation expectations were high; inflation did not ensue. One reason was the velocity of the money supply remains at record lows as money is not changing hands. With an uptick in the economy, which by expectations could come in the second quarter, and the velocity of money increasing, this could lead to inflation and will begin the renewal of the bull market in gold.

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We will be at the Canadian Investor Conference this Sunday and Monday (June 1-2, 2014). We encourage you to come out and see us, and enjoy the event. Details can be found at