Mar 7, 2017

1. A week ago I talked about the “need to bleed” for gold stocks. Since then, it could be said that the blood has flowed with gusto.
2. Until the March 15 FOMC meeting is out of the way, gold and associated investments will be vulnerable against the dollar.
3. Please  click here now. Double-click to enlarge this GDX chart. 
4. As Chinese new year celebrations waned in February, GDX began trading in a modest broadening formation. Broadening formations tend to be resolved in a somewhat violent manner.
5. In this case, the breakdown from that formation created a droopy right shoulder of an inverse head and shoulders bottom pattern. The shoulder is droopy because there is considerable market concern about the upcoming FOMC meeting next Wednesday.
6. There is good news for gold stock enthusiasts, though. To view it, please  click here now. Double-click to enlarge. The Fed’s first rate hike created an enormous rally in gold, silver, and associated stocks.
7. That’s because rate hikes incentivize banks to move money out of government bonds, and into the fractional reserve banking system, where it can be loaned out aggressively. 
8. The result is a boost in money velocity and inflation. Gold stocks mount sustained rallies in that environment.
9. In late 2016, Janet Yellen suggested an aggressive pace of rate hikes in 2017 would be her play, but most analysts didn’t believe her. After all, back in late 2015 she promised that there would be four rate hikes in 2016, and there was only one.
10. Gold stocks swooned in mid-2016 when it became apparent that the rate hikes needed to boost money velocity would not be happening.
11. A rate hike next week should quickly produce “Rate Hike Rally #3” for gold stocks. Also, I should note that the inverse H&S bottom pattern for GDX could become a double bottom pattern.
12. Double bottom patterns create substantial fear amongst investors, more so than any other technical market pattern. For a double bottom pattern to be valid, volume needs to be less on the second bottom, and so far that’s the case with GDX.
13. Tactics? I covered off some GDX short positions in the $23 area, and have started buying GDX in small size. Until the FOMC meeting is done, I’ll use my unique pyramid generator to systematically buy any further price weakness in GDX.
14. Please  click here now. Double click to enlarge. Gold bullion has not fallen much since arriving at my last selling area of $1265.
15. It appears that gold will make a low somewhere between $1220 and $1200 by the FOMC meeting, and a rally will begin from there.
16. It’s important to buy gold stocks and silver stocks around support zones for gold bullion. The buy size should reflect the size of the support. The $1220 and $1200 support zones are modest in size, so buy size should also be modest. 
17. For gold stocks to have the kind of sustained bull cycle that gets most gold bugs really excited, it’s going to take many more rate hikes and a reversal in money velocity. 
18. That has yet to happen, but Rome, and substantial inflation, are not built in a day! 
19. To view the rate hike oriented inflation building process in action, please  click here now. When I first predicted that the Fed would taper QE to zero and begin a hiking cycle, I suggested that bank stocks would massively outperform the rest of the US stock market, and that would be followed, slowly, by a key reversal in money velocity. 
20. All is playing out according to my prediction, but gold stock investors need to understand that two rate hikes in two years are not going to produce a key reversal in money velocity. More hikes are required, and the good news is that more are coming!
21. Please  click here now. Double-click to enlarge. This chart of the BKX bank stocks index versus the S&P500 shows bank stocks have delivered the massive outperformance I predicted, and that’s after just two rate hikes.
22. All gold stock enthusiasts should also be bank stock enthusiasts. Here’s why: In a market meltdown, banks tend to get gargantuan free money handouts from governments, albeit at the expense of working class taxpayers. They get food stamps, bowls of soup, and cracker crumbs. 
23. This makes the ability of banks to survive market downturns truly remarkable. The potential upside reward for bank and gold stock shareholders during a long term hiking cycle is fabulous.
24. Gold stocks and bank stocks are like lovebirds. As the Fed steps up the pace of nominal hikes in 2017 and 2018, that hiking will make real rates (inflation minus the nominal rate) drop further.  Money velocity should reverse by late summer, just in time for gold’s strong season!

Thanks! 

Cheers

Stewart Thomson

website: www.gracelandupdates.com

Feb 28, 2017

1. In terms of technical analysis, gold stocks recently reached what I call a “Need to Bleed” price area.
2. Please  click here now. Double-click to enlarge this important GDX daily chart.
3. A very large inverse head and shoulders bottom pattern is in the late stages of forming, and this is great news for gold stock enthusiasts around the world.
4. Most technical chart patterns are quite small and they tend to fail. This one is bigger, and it has a very aesthetic look. 
5. The price target of this impressive pattern is the $30 – $32 area. That represents a substantial percentage gain for investors, if it plays out.
6. I’m a GDX buyer this morning, both for myself and for the funds I manage.
7. Please  click here now. Gold bullion is displaying very solid price action. Following a likely pullback to $1245, my next technical upside target is $1275.
8. Should gold experience a deeper pullback ahead of the US debt ceiling deadline and FOMC meeting on March 15, investors should be eager buyers at $1220.
9. Gold is the world’s ultimate asset. It continues to be very well supported by the price action of the “risk-on” US dollar against other key fiat currencies.
10. Please  click here now. Double-click to enlarge.
11. After breaking down from a large head and shoulders top formation against the Swiss franc, the US dollar has formed a bear wedge.
12. It’s now on the verge of breaking down from that wedge. When the dollar fails against the franc, it tends to also fail badly against gold.
13. In time, I think the dollar will re-test the lows all the way down at the .9550 area, which means that gold will likely soon trade at $1338.
14. Please  click here now. Double-click to enlarge this dollar versus yen chart.
15. The 112.50 support zone for the dollar has been repeatedly tested, and it is barely holding. A meltdown under 112.50 that occurs while the dollar tumbles against the franc would be extremely good news for gold.
16. Please  click here now. Double-click to enlarge. That’s another key dollar versus yen chart.
17. The dollar broke down from a double top pattern at the same time as it broke down from the H&S top pattern against the franc. As that happened, the dollar was crushed by gold.
18. The dollar could now be said to be trading sideways against the yen in a very bearish symmetrical triangle formation. These types of triangles tend to consolidate the existing trend, which is now down for the dollar.
19. Is the technical situation for the world’s dollar bugs becoming perilous? I think so. The dollar looks to be targeting 107.50 against the yen, which also corresponds with $1338 for gold.
20. Most dollar bugs are also heavily invested in the US stock market. I think many elderly Americans are hoping that America can relive the glory days of the 1950s, when the US dollar and stock market were almost invincible.
21. Unfortunately, America’s debt levels (personal, corporate, and government) make this a wishful fantasy at best.
22. To understand the reality of sustainable wealth building in the twenty first century, please  click here now. Is Donald Trump going to make the American nation great by restricting the arrival of highly educated Indian engineers into the United States?
23. No, but he’s going to make American inflation great for gold stock investors! Deportation is inflationary because it reduces the US work force by about 3% – 7% in size. The time is very near when US corporations will pass on these new wage inflation pressures to their customers.
24. China and India are going to develop a much closer trade and working relationship. It’s going to happen very quickly, while America descends into a stagflationary nightmare, blasting gold stocks higher for many years into the future!  

Thanks! 

Cheers
st

Feb 28, 2017
Stewart Thomson  
Graceland Updates
website: www.gracelandupdates.com