Gold Price And Jackson Hole: No Cause For Concern

August 20, 2019

More powerful money managers are stepping forward to recommend gold in a negative real rates environment.

The focus of these elite money managers and analysts is mainly on bullion.

Many of the more speculative junior miners that trade on the CDNX have yet to participate in this gigantic rally, but that may indicate that the rally is only in the earliest stages.

This is the daily chart.  Numerous bull flags have been forming on the charts for gold, silver, and ETFs like GDX and GOAU.

This is the USD vs Chinese yuan chart.  It’s almost comical that since the US government launched a “trade war” against China in early 2018, the dollar has rallied relentlessly against the yuan.

Instead of working to reduce the dollar-yuan price, the American government has launched a tidal wave of tariff taxes.  That has pushed the dollar higher.

This policy has increased the Chinese trade surplus with America and the US government’s silly response has been to threaten to impose even more tariff taxes on all Chinese exports to America. 

Money managers are very concerned and flocking to gold!

In India it could be argued that the Modi government has essentially taken over the central bank and is forcing the bank to begin a long-term rate cutting policy.  That policy is designed to reduce the growth-destructive actions of tariff taxes on gold and demonetization.

I believe the US government plans to follow the Indian populist government’s lead and take it to another level.  I’m predicting that in the next downturn, QE and zero-level interest rates will not boost growth at all.  The US government is simply too big and carries too much debt.

Roosevelt launched a socialist “New Deal” policy, purportedly to manage the negative effects of the Great Depression.  A “New Deal 2.0” could involve the US government launching a new form of QE that involves student loans, credit card debt, and UBI (universal basic income).

Money would be printed but the central bank would be ordered to buy consumer debt with the money, in addition to buying government debt.  

Gold would skyrocket but the stock market could also do well if the Fed follows the lead of the Swiss central bank and buys a lot of US stocks with some of the printed money.

This would sow the seeds of hyperinflation, but I don’t think it will become a real concern until the use of the dollar in global financial transactions falls under 40%.  It’s still about 60%.

What about Jackson Hole?  Well, from Thursday to Sunday the world’s central bankers gather there to discuss the global economy and markets.  Could key statements from these power brokers trigger a significant reaction in gold?

This is the monthly gold chart. 

Fundamental news like tariff tax relief or positive statements from power brokers at Jackson Hole could cause a reaction from the $1500 resistance zone, but that’s a possibility and not a guarantee.  Here’s why:

Central bankers are very concerned about the refusal of governments (especially the American government) to reduce their footprint in the global economy.  This is likely why central banks continue to claim that 1% euro zone and 2% American GDP growth is “robust”.  It’s not robust, but claiming it is allows the banks to make a case for not cutting rates or renewing QE.

The central bankers know that higher rates would incentivize commercial banks to lend and force debt-obsessed governments and citizens to reduce their debt loads.  That would allow GDP growth to rise over the long-term in a sustained manner.

Unfortunately, most Western governments want lower rates so they can “borrow to infinity” while claiming that lower rates and QE are helping the common man.

Regardless, lower rates and QE are not going away and may soon become part of fiscal policy, targeting consumer debt.  All roads obviously lead to gold!

GDX has pulled back to some minor support.  Is there cause for concern?  I don’t think so.  Money managers are excited but not greedy.  That should instill confidence in all amateur gold stock investors.

For investors who are unsure of what comes next for gold stocks, one approach is to use my www.guswinger.com signals to trade ETFs like NUGT and DUST with limited drawdowns.  We booked some nice profits yesterday and we’re ready for anything that Jackson Hole brings!

Another approach for eager gold stock investors would be to buy the $28-$26 range for GDX, with an optional stoploss placed just under $26.   If gold does pullback from $1500 on Jackson Hole or tariff tax news, money managers will be buyers of both bullion and gold stocks.  It’s a healthy market!

Special Offer For Gold-Eagle Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Safehavenization of Gold Stocks” report.  I highlight key gold stocks that are becoming safe havens for money managers in a negative rates environment that appears to be here to stay!  I include money making tactics to reduce drawdowns and enhance gains.

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website: www.gracelandupdates.com.

Dollar falls on uncertainty but ends week with modest gain