-- Published: Tuesday, 16 September 2014 | Print | Disqus
By Stewart Thomson
1. Gold is the ultimate asset, and I think both the bulls and bears are probably going to learn that fact, the hard way. The gold bears view QE tapering and looming US interest rate hikes, as bearish for gold, and the bulls are sure gold is ready to soar vastly higher.
2. One of the features that make an asset ultimate, is price stability. Unlike the bulls and the bears, I predict that gold is going to trade sideways.
3. Please click here now. Double-click to enlarge. Thatís the monthly bars chart for gold. Instead of flashing a crossover buy signal, the key 5,15 moving average series has drifted into ďwet noodleĒ mode. Thatís not bullish or bearish for the gold price.
4. Itís a neutrality signal. Most of my key technical indicators and oscillators are also drifting sideways.
5. The average gold bear already looks a bit like the wolf character from the fairy tale, ďThe Three Little PigsĒ. The wolf repeatedly blows hot bearish analysis air at the gold brick house, and the house just stands there, immovable.
6. Thatís because the ultimate asset has arrived in the cost of production price zone, and demand and supply are balanced almost perfectly.
7. To understand just how perfect that balance is, please click here now. Thatís the latest forecast for global supply and demand issued by Thomson Reuters GFMS.
8. Professional money managers follow these statistics with the eye of an eagle. Please click here now. Thatís the same supply/demand table, with my prediction of how the numbers really play out in 2015.
9. I think mainstream economists are over-estimating ETF outflows. As I write this sentence, the SPDR fund holds about 788 tons of gold. This year began with the fund holding about 798 tons, and I predicted that ETF flows in 2014 would be flat.
10. In contrast, the gold bulls predicted massive liquidity flows into gold ETFs in 2014, and most bank economists predicted massive outflows. The bulls and bears were both dead wrong in 2014, and in 2015 theyíre likely going to be dead wrong again.
11. The next FOMC meeting starts today, and tomorrow there will be a press conference with Janet Yellen. Iíve predicted that ďQueen Bankster JanetĒ will begin raising rates by mid-year of 2015, and thatís bullish for gold. Hereís why: The QE program increased the money supply, but because Ben Bernanke never forced the banks to lend that money to waylaid citizens and small business owners, money velocity continued to decline.
12. By increasing the size of the money supply while reducing velocity, the Fed was actually creating deflation, and pressuring impoverished citizens to put their savings in junk bonds, to get meaningful income.
13. While Benís actions were distasteful, itís all water under the bridge now. As Janet tapers QE to zero, the growth of the American money supply is slowing down, and banks are beginning to make more loans. In 2015, I expect velocity to turn up, and thatís great news for gold asset enthusiasts.
14. Janetís coming rate hikes will allow the banks to make large profits, by aggressively loaning out their QE-produced ďbootyĒ. Twelve months from now, I expect to see a boom in bank loans that pushes money velocity sharply upwards.
15. At the same time as Janet begins raising rates, Iím predicting that Indian central chief Raghuram ďRajĒ Rajan begins cutting them in India. Iíve called Raj the worldís smartest central banker, and thatís probably a serious understatement. Narendra Modi is pretty smart, but Raj is on a different level. I think Raj will oversee a gargantuan flow of US dollars into India, as he cuts rates while Janet raises them.
16. By mid 2015, money could pour out of American stock markets and into India, like an institutional tidal wave on steroids. That will make Indian citizens richer, and richer Indian citizens buy more gold. Also, the Indian current account deficit is already a non-issue, and itís mainly related to government purchases of oil, not gold. Please click here now. Raj is already pressuring Narendra to cut fuel subsidies, and Narendra is feeling the heat.
17. In the short term, gold looks great. The traditional post-jobs report rally was probably delayed by leverage commodity index funds that faced forced liquidation. Gold futures are held by these funds, to track the gold component in key commodity indexes.
18. When the energy and food sectors sold off strongly, gold futures were likely liquidated as well, to meet margin calls. The strong-handed banks appear to have bought most of what the funds sold, which is good news.
19. That liquidation appears to have run its course now, and the rally is underway. Please click here now. Thatís the hourly bars chart for gold. The bottom line: This asset is ultimate, and itís moving higher!
20. To view the daily bars chart, please click here now. The further that price sits, below a sell-side HSR (horizontal resistance and support) zone, the more that zone acts as resistance to upside action.
21. In this case, gold did not move significantly below $1242 on the recent decline, and that suggests gold has a good chance of winning the battle to recapture this price zone.
22. The weekly chart looks superb. To view it, please click here now. The fight to recapture $1242 is not going to be a cakewalk, but my weekly chart price stoker oscillator suggests the bulls will win.
23. Gold stocks are poised to dramatically outperform gold as it rallies. Please click here now. Junior gold stocks are favoured by most of the Western gold community, and this GDXJ daily chart suggests they are poised to please.
24. Note the crossover buy signal in play today, on my price stoker oscillator at the bottom of the chart. While I expect gold to be flat in 2015, GDXJ should rise above the recent $46 area highs, and hold those gains!
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-- Published: Tuesday, 16 September 2014 | E-Mail | Print | Source: GoldSeek.com