| Gold has staged a superb rebound from the $1310 support zone, but that was overshadowed by the truly spectacular reversals taking place in most of the Western world’s gold stocks!
 
This is the gold chart. I like the technical action being displayed right now. Here’s why:
First, $1370 is massive resistance. It’s understandable that gold would build a modest head and shoulders top pattern after arriving at this key price zone.
What’s especially positive is that gold has only modestly declined in the face of this resistance and top pattern. My key 14,7,7 Stochastics oscillator is also modestly oversold now, which is good news.
This morning, the dollar broke below key support in the 108 price area against the yen.
When investors bet against central banks, they tend to lose. When they bet against the President of the United States, they can get blown right off the financial map.
The bottom line is that President Trump was elected on a mandate to bash the dollar lower, and it is getting beat on like a rag doll by the yen right now.
The bear flag-like action occurred as the dollar approached this support zone. That is ominous for the dollar bugs, and fabulous news for gold.
Investors don’t need to “back up the truck” when buying precious metal assets right now, but they should be emotionally positive and focused more on gold stocks than bullion.
That’s because there is so much news taking place fundamentally in the gold market that favours the miners. Inflation is rising, mainly because quantitative tightening is pushing money out of government bonds and into the banking system.
That’s raising interest rates, incentivizing banks to lend, and putting pressure on the US government’s ability to finance itself. Since breaking the neckline of a daily chart head and shoulders top pattern, the US T-bond hasn’t even staged a minor rally!
Another of Trump’s election pledges was that US bond market creditors were going to take a haircut on what they get paid. Looking at the price action in the bond market and statements from new Fed chair Powell, it appears that a haircut is on the cusp of really happening.
Trump is acting like he doesn’t care if the US government defaults, and I would suggest that’s the right course of action to take. Inflate, default, or die. It looks like a combination of inflation and “defaultation” is what Trump has planned to end the US government’s horrific levels of excess size, debt, and abuse of citizens around the world.
The rising risk of a joint bond and dollar market meltdown is why gold has acted like a champ while quantitative tightening and rate hikes accelerate.
While QT and rate hikes are the main gold fear trade theme, there are many other supporting factors.
For example, powerful money managers are beginning to voice concerns that Trump’s spending on infrastructure and his tax cuts could cause “overheating” in the US economy.
When institutions get into that mindset they buy… gold stocks!
This is the GDX chart. There may be a classic non-confirmation signal in play for the entire precious metals sector, with most gold stocks breaking their December lows, while gold bullion did not.
The GDX break of its December low was immediately followed by a V-Bottom pattern. Note the position of my key 14,7,7 Stochastics series oscillator. It’s adding to the power of the buy signal in play.
That’s another look at GDX, with an emphasis on the trading volume.
Both Powell and Trump seem more interested in the success of Main Street than in Wall Street or the government bond market. I’ve predicted that Powell will attempt to reverse US money velocity by the summer of this year, and that he will succeed.
That change in focus is great news for citizens who have been encased in vile government red tape for far too long, and it is spectacular news for gold, silver, and mining stocks.
With the dollar, T-bond, and the general stock market on very shaky and inflationary ground, institutional money managers have started to take a serious look at gold stocks. By the summer, I expect them to be consistent buyers every month. It doesn’t take a lot of institutional money to blast gold stocks to significantly higher price levels.
To profit from the imminent inflationary fun, aggressive investors should buy GDX call options. Investors who don’t own gold stock at these price levels or lower should be firmly pressing the buy button today!
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