Gold And Silver Stocks Dare To Dream

The good news for gold continues to flow like water pouring over Niagara Falls.  The SPDR gold fund has seen strong tonnage inflows in 2016…with the fund now holding 777 tons of gold.

The buy-side fun isn’t limited to gold bars.  In America, gold coin sales are experiencing a huge resurgence. 

Clearly, institutional liquidity flows into gold are getting stronger, and more influential bank economists are taking a positive view on the world’s “ultimate asset”. 

Gold bear fundamentalists aren’t quite Dodo birds yet, but I think it’s only a matter of time before that happens.

From a technical perspective, gold also looks very good.  The target zone of the triangle formation is the $1320 area.

Ironically, if the triangle pattern were to fail, that would create an even higher price target for gold.  If gold breaks down from the triangle pattern, it would create a bullish right shoulder of a large inverse head and shoulders bottom pattern.

The target zone of that pattern is quite high, in the $1432 - $1523 area.  What fundamental event could create a break-down from the triangle pattern now, and create that right shoulder? 

Indian jewellers are targeted by the taxation-obsessed government relentlessly, and they are launching strike action today.

While that’s slightly negative for gold in the short term, I’ve predicted that Chinese investors would be “reinvigorated” by a decent gold price rally, and the current price action is exactly what the golden doctor ordered for that to happen.

Kitco News notes that UBS economists feel, as I do, that continued strength in the gold price is going to give Chinese investors more confidence about buying gold.

Influential Societe Generale (SoGen) analyst Robin Bhar also appears to speak quite positively about the actions of Chinese investors.   

While gold stocks may be overbought on some short term charts, they are much closer to being oversold on longer term monthly charts.  This is the long term monthly chart of the Dow.

Technical indicators like RSI became “overbought” in 1995, in the Dow 4000 area, but the market continued to rise relentlessly for about five more years.

The growth of China and India is likely a more powerful force for gold now, than the US middle class was for the US stock market in the 1990’s. 

Regardless of how technically overbought they may become, gold, silver, and precious metal stocks can theoretically rise for many years, or even decades, as the growth of the Chindian middle class continues. 

This is especially true in India, where gold is an integral part of the Hindu religion, and the country’s GDP growth rate could hit 10% in the next 24 months.

I’ve predicted that this will happen, and usher in a global “bull era for gold”.  As India’s gold-obsessed citizens lead the world forwards economically, the gold price can rise much like American GDP did in the 1950s.

This is the magnificent GDX monthly chart. 

GDX has broken a long term downtrend line, and it’s clear that the technical situation is far from overbought.  I believe that Chindian demand will enable GDX to become overbought, and stay that way for many years, regardless of what happens in the West.

Silver has not performed as well as gold has recently, but that should not be a concern for silver stock investors. 

This silver stocks ETF has already rallied about 50%, even though silver bullion has barely moved. 

Janet Yellen is very focused on the Phillips Curve, while I think most money managers erroneously believe she is focused on the US stock market.  US inflation is already showing signs of ticking higher, and Janet believes that higher inflation will drive GDP higher, basis her Phillips Curve theory.

If silver stocks have already soared about 50% while silver bullion has barely budged, I’ll ask global silver stock investors to “dare to dream”, and envision a much stronger rally if Janet is successful in her mission, as I’m absolutely sure she will be.

If US inflation rises even modestly, SIL should reach $50 without much difficulty.  In the medium term, a strong rally to key trend lines in the $30 - $32 area for SIL is a realistic scenario, and it’s my target!

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