Dow Index Burns And Gold Stocks Rock

In late 2013, I predicted the Fed would taper its QE program to zero, and the first taper would cause gold to rally, stunning the Western gold community. I also predicted the taper would turn the US stock market into a “wet noodle.” That’s what happened. 

In 2015, I expect the Fed to hike rates sooner than most analysts expect, and I’m predicting that gold rallies on these rate hikes, and global stock markets take a horrific beating.  I expect the stock markets of India and China to recover from that beating, but not the American market.

Despite yesterday’s mini-crash, I don’t think the American stock market is pricing in the reality of the coming rate hikes.

That’s the daily Dow chart, and it’s off to a terrible start this year.

The “January indicator” that I use focuses on the first week of trading during each year.  If the Dow ends that first week on the downside, it can indicate the entire year will be negative.

That’s because how the Dow trades during the first week of January is a very good barometer of how institutional money managers are adding or withdrawing risk capital, with a one year outlook.  So far, their outlook is very negative.

That’s the monthly Dow chart.  I would not be a buyer of the US stock market, unless the Dow declined to the 14,000 area, and even then I’d only be a light buyer.

I’ve argued for years that the US government is more interested in the corporate stock market than the real unemployment rate, because large corporations provide a lot of money to get politicians elected.  Those corporations benefit from higher stock prices.  Some analysts believe the stock market can only crash when the public is heavily involved, but I would argue that the hedge funds are the “new era” public, just as robots and computers are becoming the workers of the new era.

Rig counts are beginning to drop in US oil fields, and large layoffs are likely coming, yet the government continues to boast that more restaurant jobs are being created.  Clearly, America is in no condition to endure an economic downturn, yet a downturn is coming, almost as surely as night follows day. 

When the next crisis unfolds, I expect the Fed to quietly ask the Chinese central bank to revalue gold, by announcing a major gold buy program.  This would allow China’s currency to become a competitor with the dollar. 

Equally importantly, it would allow the Fed to hide the key role that a higher gold price would play, in managing US government debt that is clearly out of control.   

That’s the daily oil chart.  The price has arrived at my short term $49 target area.

I think oil may trade under $30.  Rate hikes and a peak in the US business cycle could keep it there for a long time, which is fabulous news for gold mining companies. 

At the start of December, the Indian central bank killed the 80-20 gold export rule, and gold immediately soared about $100!  There are strong rumours that the Modi government may be only about 48 hours away from making another major announcement, directly relating to gold.

“The Union Commerce Secretary Rajeev Kher has scheduled a meeting on Jan. 7, which will be attended by representatives from country’s finance ministry, the Gems and Jewellery Export Promotion Council (GJEPC) and the Reserve Bank of India (RBI). According to reports, the government intends to extend the ‘Make in India’ campaign into gold sector.” –Resource Investor News, January 5, 2015.

Indian gold demand is the elephant in the gold price discovery room, and that elephant is beginning to “stand up and take charge”.  “The recent survey conducted by the country’s leading credit rating agency ICRA Ltd shows that the gold jewelry demand in Indian domestic market is poised to witness 10% growth in 2015.” – Scrap Monster News, January 5, 2015. 

Dramatically lower fuel costs, coupled with higher demand for gold from China and India appear to be creating a huge “win-win” situation, for Western gold stock investors!

That’s the daily GDX chart, and the fundamental price drivers are creating a very bullish technical picture.  Note the buy signal in play on my 14,7,7 series Stochastics oscillator.  Volume is bullish.  A two day close above $20.50 could ignite a powerful rally, to the $28 area.

That’s the GDXJ chart.  I think most analysts are underestimating the dramatic effect that low fuel prices and surging Chindian demand can have on the price of junior gold stocks.  Naked shorting should soon be replaced by “institutional respect” for gold stocks, and that includes the junior sector.

The reason most gold bears have been so wrong about gold crashing in 2014 and 2015, is because they are excessively focused on technical analysis and the US economy.  They also appear to be almost clueless about key events occurring in India and China. 

Going to war with only one weapon is an act of madness.  It’s the same thing with investing in gold.  Investors who stare at charts and just trade gold rather than embrace it as the ultimate asset, are likely to fail miserably, in the long term.  That’s because charts don’t make fundamentals.  Fundamentals make charts.  The bears learned that the hard way, when the Indian central bank killed the 80-20 rule.  They may be about to get another brutal lesson in gold market fundamentals, if the Modi government openly embraces the gold jewellery industry in the next 48 hours.

The gold jewellery sector is the second largest employer in India, and gold is a key part of the Hindu religion.  Simply put, the Western gold bears and their ridiculous chart patterns are no match for the “shock and awe” power of a billion Hindus, whose thirst for gold is…. insatiable!

That’s the daily gold chart.  Note the Stochastics oscillator buy signal in play now.  Note the “bull era channel” that I highlighted.  In the very short term gold will continue to move erratically, in response to key economic data like the upcoming jobs report on Friday.  In the bigger picture, the rise and consistency of Chindian demand should create a stable and modestly rising price trajectory.

That’s the daily chart for silver.  Note the nice buy signal in play on my Stochastics oscillator.  The bull channel is steeper than the gold channel, and that’s normal.  Silver tends to rise more strongly than gold does, when both are in an uptrend.  Bullion expert Koos Jansen has apparently reported that silver trading volume on the Shanghai market exceeded that on the COMEX in 2014.  I’ve predicted that gold will meet the same “fabulous fate” by 2017.  Silver’s price tends to be determined by the gold price, and as gold trading volume in Shanghai (and Dubai) begins to overwhelm the COMEX, both gold and silver investors can probably look forward to many happy years, of higher prices!

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