Gold: Chinese Transparency Is Here

China stunned many mainstream media (MSM) analysts this morning.  The country’s central bank (PBOC) just devalued its fiat currency by about 2%!

Most analysts think the devaluation is related to plunging exports, and that’s partially true.

China’s exports have fallen, but not because of problems in China.  The West is the culprit.  The US economy is faltering.  Many US citizens are working multiple jobs, and they are not in a good financial position. 

The US government and the Fed said that low oil prices would stimulate their consumer spending.  That hasn’t happened, and the Atlanta Fed appears to be very worried about the prospects for US third quarter GDP growth.

The yuan devaluation was partially related to the declining demand in the West, but in my professional opinion it’s more related to China’s drive to “internationalize” itself.  

The PBOC is moving away from a fixed currency peg, and towards market pricing.  That should garner IMF “kudos”, and speed up the decision to include China in its SDR.

That’s the daily gold chart.  Note the superb position of the 14,7,7 Stochastics series, at the bottom of the chart. 

I often refer to that oscillator as “Tony the Tiger”, and Tony is roaring “Buy” right now.  The lead line is at about 50, which is where strong momentum-oriented moves often occur!

In the short term, I’d expect a pullback to about $1105, and then another assault on the $1118 area, followed by a charge to $1140.

There’s more good news for fans of the world’s greatest asset (gold).  That’s an excel spreadsheet that is now available at China’s SAFE (State Administration of Foreign Exchange) website.

Conspiracy buffs feel gold is manipulated and want to see a lot more transparency on the COMEX, but I’ve argued that a bigger key to higher gold prices, is to add transparency in Chinese markets. 

The Chinese government and central bank are moving very quickly to get that done.  SAFE has started releasing a monthly report of the nation’s FOREX holdings, and that includes gold.  That adds tremendous transparency to the actions of the Chinese government, the central bank, and the gold market!

All Western gold community eyes should be on the yuan, over the next few days.  If the PBOC stands clear and lets it trade relatively freely, I think that will make the IMF very eager to move decisively, and include it in its SDR.

I never subscribed to the “James Bond” view of some analysts that the PBOC was secretly accumulating large gold holdings, and preparing to attack the dollar by selling US T-bonds aggressively. 

Having said that, I’m adamant that the PBOC wants to increase its gold holdings by thousands of tons, and will do so at a measured but relentless pace, with a buy program that the new SAFE reports make fully transparent.

Russia is already reporting its central bank gold holdings on a monthly basis, with excellent transparency, and now China is too.  Will India’s central bank be next, to join the gold buy program party?  I think that’s coming, but further down the road, after the gold import duties are repealed. 

In the shorter term, I think the Indian government’s silly “gold monetization” program will actually increase gold imports.  Indian citizens will buy gold bars and place them with banks to get interest paid in gold, and they’ll buy consistently larger amounts of gold jewellery, because gold jewellery is a key component of the Hindu religion.

Growing Chinese market transparency, surging Indian gold jewellery demand, and the overall decline of the out-classed West is clearly creating a fabulous situation for mining stock investors.

That’s the GDX daily chart.  Note the superb volume, and the bullish action of the 14,7,7 Stochastics series!

I’ve urged gold stock investors to focus on the seasonal surge in Indian demand that typically happens around August 7^th.  Also, in the shorter term, gold has a very strong tendency to decline ahead of the US jobs report, and then rally after that report is released. 

Friday was August 7^th, and it marked both the beginning of the strong season for India, and the US jobs report.  Since then, gold, silver, and related stocks have launched what can only be called a “bombastic” rally.  Some individual mining stocks have risen more in the past two days than the US stock market indexes have risen in the past two years.

It appears that Indian “Thunder Demand” has arrived, in the gold market!       

That’s the daily GDXJ chart.  I think that a three day close above $21 will send this key ETF to the $27 area, and many individual stocks could see much bigger price action.

What will China’s next move on the “bull era” transparency front be?  What kind of demand will result from the good monsoon rains and Diwali season in India?  How will the Fed react to China’s action to drop the yuan-dollar peg?  These are all key questions, but only those who are buyers of key gold and silver stocks now are poised to profit, if the answers are bullish for gold!

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