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The traditional post jobs report rally for gold is in full swing. This is
the daily gold chart. Gold arrived at a key Fibonacci line at about $1268 as
the US jobs report was released.
The dollar has stalled against the yen, and that’s also good news for
gold.
Gold tends to stage great rallies in the days following the jobs report, and
this rally is a particularly interesting one. Here’s why:
First, Trump has ratcheted up his “hawk talk” in regards to North
Korea and Iran. He’s scheduled to make a key speech on Thursday about Iran, a
country which is now exporting two million barrels of oil a day.
Second, the Chinese government recently chopped commercial bank reserve
requirements. That triggered a massive rally in bank stocks around the world,
and in most stock market indexes.
Chinese citizens tend to buy more gold when stock markets are rallying
and economic sentiment is positive.
Friday also marked the last day of COMEX gold trading during the Golden
Week holiday in China. Chinese gold markets are now open again, and eager
buyers are clearly in action.
Perhaps most importantly of all, on Friday the Indian government cancelled
the “Know Your Client” rule for gold jewellery buyers and that
happens just in time for the launch of Diwali.
This is pretty big news for gold price enthusiasts around the world.
Given all of this gold-positive news, it’s pretty easy to understand why
gold has bounced so firmly from the $1268 area Fibonacci line.
Fundamentally, there is nothing negative for gold right now. Gold has
rallied after every rate hike. It did that in the 1970’s as the Fed Funds
rate soared to 20%. The precious metals and the mining stocks soared like a
flock of golden eagles as that happened, and 2018 could see that repeated,
albeit on a smaller scale.
The Fed has three rate hikes scheduled for 2018, and aggressive
quantitative tightening (QT). By December of 2018, money velocity should
reverse and begin a long-term bull cycle.
The QE money ball is essentially “toast”. Bond prices will get a
haircut as rates rise and QT accelerates. Money will pour out of government
bonds and central banks and into the fractional reserve banking system, and… into
gold.
Central banks and governments have not propped up their economies since
the 2008 financial crisis occurred.
What they have done is prop up financial markets while insidious inflation
and no wage gains on Main Street have seen the plight of the average citizen
get worse.
That can change. Donald Trump’s three main campaign promises were to cut
taxes, chop the price of the US dollar against other fiat currencies, and to
give government bond market creditors a haircut.
His promises are essentially a mechanism to move a portion of the fifteen
trillion dollars in financial markets liquidity towards Main Street. He has
yet to do that, but I think 2018 will probably be recorded in history books
as “The Golden Year”.
I’m predicting that 2018 will be the year that Trump begins talking more
openly about the bond market and the need for creditors to be realistic about
what they can expect to get paid.
Along with the “motherlode” of positive demand coming out of China and
India, Trump’s actions and words should help make 2018 the year that gold
ends its sideways trading pattern of the past three years, and starts a
significant trending move higher.
This is the fabulous silver chart. There’s a beautiful Inverse Head &
Shoulders bottom formation in play, with an ultimate target in the $22 area.
This is the key GDX chart. GDX has started a strong rally. All fundamental
lights are green for the entire precious metals asset class.
Most technical lights are green, except for one. My “line of concern”
at $1300 relates to the head and shoulders top neckline that gold is rallying
towards now.
The technical target of that pattern is about $1215. Whether the “Queen
of Assets” can successfully surge through that neckline area is likely
to be determined in the short term by Trump’s speech on Thursday about Iran.
In the medium term, it will be determined by the amount Diwali gold demand
that appears (or doesn’t) over the next two weeks.
Tactics? Nervous investors should buy put options and buy them today! On
the buy-side, the key for gold bugs is to be light buyers of all their
favourite precious metals investments if gold trades at $1270 and to be
substantially bigger buyers at $1215 or lower. Do that, while cheering that
the price only goes higher!
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