Gold's 12 Month Road To $1700

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Published : May 29th, 2018
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Category : Gold and Silver

The next Fed rate hike is only about two weeks away, and another ramp-up in monthly quantitative tightening is scheduled for the end of June.

Investors are generally quite positive about the economy, but they don’t have much cash to invest. Most citizens of the Western world have meagre savings, a lot of debt, and inflation threatens to make matters worse for them. A lot worse.

With each passing month, more institutional money managers and influential analysts voice major concerns about inflation being the catalyst that ends the US equities bull market.

The Dow has gone nowhere since Powell became Fed chair, and I expect it to go nowhere throughout his tenure. That’s the best-case scenario. I shouldn’t mention the worst-case, because almost nobody believes that the Dow can crash in inflationary inferno. That’s not only the worst-case scenario, it’s by far the most likely one.

Investors could buy very light positions in the buy zone I’ve highlighted on this Dow chart, and sell them in my sell zone, but sand in the bull market hourglass is running out fast. It’s really a trade for gamblers. Serious investors need to be lightening up here. In my US stock market portfolios, I’m at about 30% cash, and it’s rising.

Central bank tightening is a global theme and barely out of the starting gate. It’s happening against the background of rising US government debt, corporate debt, citizen debt, and inflationary tax cuts.

Citizens and governments are generally euphoric, as they were in 2007, 1999, and 1929. The difference between now and previous peaks in euphoria is that the average citizen doesn’t have much cash to spend this time. It’s gone.

Since oil made its low in 2016, energy and tech stocks have received significant mainstream media attention.

Oil is in a danger zone now. At a bare minimum, a supposedly healthy correction is overdue. Trump wants oil lower and federal election campaigning has started in India. Indian currency and bond markets are being ravaged by high oil prices and global central bank tightening. Modi just flew to Russia and met with Putin. His meeting marked the top in oil.

I think the sell-off in oil could become more significant than most investors are prepared for, but once it’s over the arrival of significant global inflation will drive oil towards $200 a barrel.

By this time next year, gold should be challenging the $1500 area, and perhaps trading as high as $1650 - $1750.

Luis Oganes is an institutional heavyweight. He’s on the inside. When he speaks, gold bugs need to drop what they are doing and pay attention. He’s not only predicting gold will be at $1700 next year, but has the potential to surpass that juicy target price!

Few investors realize that the major mining stocks that I hold in my portfolio are up an average of 150% from that 2016 oil market low. They have blown away technology and energy stocks, and left the global stock market indexes even further behind.

Most importantly, as inflation transitions from an institutional investor concern to an outright wrecking ball, I expect this fabulous performance of the giant base metal miners to continue, with gold and silver miners shooting past all market sectors to become the ultimate market darlings.

The dollar is again in freefall against the yen, and that suggests the dollar will soon be taken to the woodshed by gold.

Investing champions like Ray Dalio are working hard to make investors understand that gold is not simply a fear trade hedge. Instead, it is the ultimate portfolio returns enhancer in good times as well as bad.

Having said that, as inflation becomes a massive theme in 2019, investors can give gold any label they want. That won’t matter. What matters is that institutional money managers will be buying it with both hands…and with three if they had an extra hand!

There’s nothing more glorious than a great gold price rally, and a big one is getting underway now.

Note the technical perfection being showcased by the “queen of assets” on this short-term chart. A symmetrical inverse head and shoulders bottom breakout was followed by a picture-perfect pullback to the neckline, and now, as I predicted, the queen of assets is following the yen and beating on the dollar like King Kong beating on a tin can.

My next target is $1327, and I think gold can now reach up and touch that price with very little effort. It’s a great place for short term profit booking and it should happen ahead of the key June 13 Fed meet. After that pause and likely right shoulder low, gold should blast through $1375, and make a medium-term beeline towards $1450.

China just launched an important physical metals trading platform yesterday. Attention all silver bugs: Trading begins with base metals, but will quickly expand to include… silver bullion!

I’ve referred to a future dominated by China and India being the gold and silver “bull era”. A key part of that thesis involves COMEX price discovery for gold and silver becoming vastly more related to physical demand versus physical supply.

Price discovery has been dominated in the past by Western hedge funds gambling on gold-irrelevant nonsense from “Fed speakers” and “gold doesn’t pay interest” mainstream media propaganda. Bull era price discovery is already happening with gold, and silver is next on deck. Investors can write that down and take it to the bank. The silver bullion bank!

This is the superb GDX chart. Many of the component stocks are in roaring uptrends. GDX itself has been coiling sideways since mid-April in a bullish drift. That should be resolved with a significant rally that stuns most analysts with its intensity.

The financial system and QE-oriented gold fear trade is alive but on the back burner. There’s a new generation of gold bugs in the Western gold community who understand that inflation is coming and will be here to stay. The love trade and the inflation trade will form the backbone of the bull era. Eager investors around the world who know this is true are now aggressively accumulating portfolios of gold stocks, in preparation for decades of upside fun!

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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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