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Gold: Good News…But Where's The Demand?

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Published : March 26th, 2019
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This is the long-term gold chart.  Fundamental and technical analysis are both strongly supporting gold’s rally towards the key $1400 area.

Having said that, COMEX price action mainly reflects action in the physical market and this is the weak season for gold.

Investors need patience.  News in the West that “should” push gold $100/ounce higher is in play, but modest physical market demand in China and India means that rallies are modest.

If this news was happening during the Chinese New Year Jan-Feb peak physical demand time frame, gold would be staging a “barn burner” rally.

Instead, it’s contained in a $1280-$1350 consolidation range.

This is the daily gold chart. 

The bottom line:  Gold is on a journey to the $1400-$1420 price zone, but it’s not a rocket ride.  It’s more of what I call a “bull era plod”.

The other fact to keep in mind is that the inversion of the US yield curve with artificially low rates isn’t suggesting that American economic growth is “cratering”.

Growth is slowing down, but it’s too early to predict that a recession is imminent.  A US-China trade deal could provide some medium-term support for stock markets without being negative for gold.

Central bank gold accumulation is another positive factor, but it’s currently only about 50-60 tons a month.  In the weak season Chindian demand often drops from 200+ tons a month to about 60-80.

Central bank and Western fear trade demand is decent, but isn’t making up for the shortfall caused by the drop in Chindian demand.  That’s being reflected in commercial trader action on the COMEX. 

Gold is rallying strongly from the $1280 zone because Chindian dealers are buyers there.  They are fading their buying in the $1310-$1320 area, leaving Western money managers to do the heavy lifting.  That’s no easy task with Chindia quiet.

To put it simply, Western financial news is gold-supportive in content, but until Chindian buying resumes in size gold will be more of a trader’s market than the start of a “huge bull run”.

The good news is that $1280-$1350 gold is a great price for the miners, and many are surging to one fresh high after another!

This is the fabulous GDX chart. 

I’ve suggested that a Friday close of $23 or higher for GDX and $14 for Barrick (GOLD-NYSE) would open the door to a much more significant rally for most gold and silver mining stocks.

GDX closed above $23 yesterday and Barrick closed above $14.  It’s not Friday yet, but this is a very positive sign!

I don’t expect gold to move above $1350 until Chindian demand begins to strengthen in August… unless there’s a major economic shock in the West.

Having said that, when it does rise to $1400-$1420, I expect a massive bull run to occur in the miners. 

The logic for this outlook is that most analysts have underestimated the profits that miners will make at $1400+, and global stock markets are likely to swoon again in the Aug-Oct crash season.

In Sept 2018, gold was in the $1200 range.  If it is in the $1400 area in Sept 2019 with stock markets swooning, institutional money managers could engage in a gold stock buying frenzy!

A September rate cut from the Fed to calm the panic would likely enhance the frenzy.

This is the silver stock ETF chart. 

Note the recent rise of the key TRIX indicator above the zero line.  That’s the sign of a technically healthy market.  A sustained bull run for silver stocks would be signalled by a Friday SIL-NYSE close above $30!

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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-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.
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