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Gold: The Cost Of Production Is Near

 -- Published: Tuesday, 15 November 2016 | Print  | Disqus 

Graceland Updates

By Stewart Thomson


1.    Gold is no longer vulnerable.  It has entered a nice buying area.

2.    The $1225 - $1200 price zone is both technically and fundamentally important.  Hereís why:

3.    The average cost of producing gold is now approximately $1210.  Fundamentally oriented money managers of size are almost always buyers when gold dips into the cost of production zone.

4.    For a look at the technical action, please click here now.  Double-click to enlarge. 

5.    The $1225 - $1200 zone is decent support.  Itís not huge support, but itís decent.  I was a modest buyer in the $1220 area this week, after being a seller at $1305 - $1320 last week.

6.    I think a lot of people believed that the election of Trump would send gold skyrocketing, but I called gold ďvulnerableĒ going into election night.

7.    The bottom line is that Trump is ďsupportiveĒ for gold.  His economic plan will increase the size of an already out of control US government debt.  His infrastructure spending plans are inflationary. 

8.    Itís impossible for America to grow its way out of the unfunded liabilities nightmare it faces.   

9.    The debt problem canít be fixed with more taxes.  It canít be fixed with less taxes.  It canít be fixed with more growth.  It certainly canít be fixed with more debt. 

10. Americaís epic debt problem canít be fixed at all.  Debt needs to be paid, and it isnít going to get paid. Thatís why investors need to own gold.  Simply put, in the big picture, Trumpís election is good news for gold, but in the short term, $1305 -$1320 is significant sell-side resistance.

11. As gold surged in the first half of 2016, miners engaged in significant hedging on the COMEX.  With the price now near the cost of production again, they appear to be pulling off those hedges.  Thatís very good news.

12. Please click here now. Double-click to enlarge.  Thatís another look at the daily gold chart.

13. The $1218 area is a key 50% Fibonacci retracement.  When the price of an asset pulls back to an important Fibonacci line, investors are not guaranteed ďfree moneyĒ if they buy, but if important fundamental news is at hand, it is a key buying area.

14. Given that gold is at/near the cost of production for mining companies, this particular Fibonacci retracement zone is quite important.

15. Please click here now. Double-click to enlarge.  After staging a mini crash after the US election, the T-bond looks set to rally. 

16. Thatís more good news for gold; gold can rally if the T-bond falls against the dollar, but only if real interest rates fall (nominal rates minus the rate of inflation). 

17. The violence of the T-bondís post election price decline far exceeded the rise in inflationary expectations, and so gold was hit hard against the dollar.

18. Gold should rally from the $1225 - $1200 area, and it likely will do that.  If there is no rally, the next reasonably important buying area is at modest support in the $1180 - $1160 zone.

19. Please click here now. Double-click to enlarge.  Note the Stochastics indicator at the bottom of this GDX daily chart.  Itís almost oversold.

20. Next, please click here now. Double-click to enlarge.  Thatís a second look at the GDX daily chart.  The 38% Fibonacci retracement zone is now in play, in the $20 area for GDX.  Light buying is recommended, mainly because gold is at the mining industryís average cost of production.

21. Iíve laid out a ďplaybookĒ for the transition from deflation to inflation, and for the transition from America as leading empire to the rise of Chindia.  In that transition, gold stocks serve as the canary in the inflationary coal mine.  They sang loudly in the first half of this year. 

22. To actually create that inflation, higher interest rates are required.  Those higher rates incentivize banks to move money out of the government bond market and into the fractional reserve banking system.  As the money is loaned out, money velocity reverses, and inflation is created.

23. Please click here now.  Double-click to enlarge.  This regional bank stock ETF shows where America is, in that transition.  Bank stocks are surging, driven by the prospect of higher bank loan profits.  Trumpís promised deregulation of the banking sector is adding rocket fuel to the rally. 

24. Western gold community investors need to have a wee bit of patience.  Hereís why:  Bank stocks are the main theme at this point in the transition to an inflationary world.  Once bank profits rise, money velocity will reverse.  From there, gold stocks will begin a vastly bigger rally than the one that occurred in the first half of this year, and this one will be sustained!






Stewart Thomson 

Graceland Updates


Note: We are privacy oriented.  We accept cheques, credit card, and if needed, PayPal.


Written between 4am-7am.  5-6 issues per week.  Emailed at aprox 9am daily.  




Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of 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 qualified 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 investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:  

Are You Prepared?



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