Gold is the world’s ultimate asset, and another spectacular week is underway for investors. While May was mostly sideways (and lower for many gold stocks), it’s starting to look like the month of June could be a serious “barnburner”
daily bars gold chart.
Gold tends to stage a decent rally in the days following the release of the US jobs report.
That’s in play now, as I suggested it would be, but the rally is also on “Indian demand steroids”. It’s unknown how big black market demand is, but the official demand alone came in at over 100 tons for May!
This weekend’s government announcement of a 3% GST rate on gold sales has sent Indian jewellery stocks skyrocketing. The new GST effectively cuts the total tax rate in the state of Kerala, which I have dubbed “world gold demand headquarters”.
In my professional opinion, the bear cycle in Indian demand is over. Once the Diwali festival buying season arrives, I’m predicting that imports could reach a new single month record high of 200 tons.
The big picture gold chart.
With the bear cycle in Indian demand over, gold is likely to begin its rise out of the huge $1923 - $1045 consolidation pattern. Gold is essentially poised to play “catch-up” with the skyrocketing price of anti-fiat currency bitcoin, and begin a steady rise to my targeted $2800 price level.
Some analysts have noted problems in India’s banking system. The problems are real, but surmountable. The demonetization program has arguably been a de facto recapitalization of Indian banks.
Also, a lot of Indian business is financed outside of the traditional banking system. Many businesses use private loan companies, and pay their debts with gold. These loan companies have vast reserves of gold and provide solid amounts of venture capital to eager young entrepreneurs.
Barron’s has astutely noted the huge boost to GDP that the arrival of Indian women in the work force can produce.
I’ve predicted that Indian GDP will reach 10% in the next few years, and I stand by that prediction. As Indians build more fiat wealth, they buy gold with it. Indian gold demand growth is inelastic. It grows as Indian wealth grows.
These target prices may seem ridiculous to the average investor, but if blue chip NYSE stocks had the type of limited float that bitcoin has, many of them would be trading at millions of dollars per share right now. The same is true for gold; if there was no more mine supply and rising demand, the price would theoretically go to infinity. Investors new to the blockchain space can get more information at my www.gublockchain.com website.
Simply put, it’s the greatest time in history to be invested in anti-fiat currencies like gold bullion and bitcoin, but what about gold mining stocks?
That’s a snapshot of the price action of some well-known gold and silver stocks over the past six months.
Clearly, it’s been a painful time, especially given the fact that bullion has done reasonably well while the stocks swooned.
Is there any light at the end of the tunnel for gold stock investors that isn’t a freight train? Well, the answer is yes. Gold can do well in both inflationary and deflationary crisis, but gold stocks need inflation to consistently outperform bullion.
I predicted that gold stocks would bottom against gold when Janet Yellen ended the deflationary QE program and replaced it with rate hikes.
So far I’ve been proven correct, but more rate hikes are required to create a powerful bull cycle in money velocity. Accelerating money velocity creates accelerating inflation.
Also, as more rate hikes occur, institutional investors will become concerned about their US stock market investments. They won’t necessarily sell their existing holdings, but the US stock market is likely to stagnate as they focus new money on European markets, Asian markets, and gold stocks.
The price action of GDX is reasonably stable within a large consolidation area.
Gold stocks have a strong tendency to rally after a rate hike, and the next one is probably only about nine days away. My approach is to be an aggressive GDX buyer on every ten cents per share price decline.
Those purchases are made in anticipation of another rate hike. With a new Indian gold jewellery demand bull cycle now underway, that rate hike should produce a vigorous rally in GDX and most individual gold stocks.
Written by Stewart Thomson
On Gold-Eagle, 6th June 2017