Gold Price: Vulnerable Until Rates Are Hiked

Gold is vulnerable.  It’s technically overbought…and a developing top pattern is a concern. 

The $1305 - $1320 resistance zone is significant, and in my professional opinion, the rally to the $1380 area was not big enough to turn that resistance into support.

I’m still a seller at $1305 - $1320.  If gold reaches $1425, I’ll then be a buyer at $1320, if there is a decline into that level.

How vulnerable is gold right now?  Commercial traders (aka “the banksters”) are carrying a massive short position, as the latest COT report clearly shows.

Also, there’s a perception that a Republican victory in today’s US election would be good for gold, but not all economists agree; some believe that a US dollar rally is more likely.

Famed investor Jim Rogers has this view…and he is followed by many money managers.

Of particular concern to me are the developing head and shoulder top patterns that are in play across the gold sector. 

Given the commercial trader positioning in the COT report, which includes significant mine hedging, my technical target in the $1100 area seems realistic.

If such a decline were to occur, gold stocks may go to new lows before the end of the year, while gold and silver bullion would likely hold well above their 2015 lows.

In the big picture, I’ve adamantly argued that gold stocks have been in a bear cycle against gold since 1996, because money velocity and bank loan profits have been in a bear cycle since then.

Most of the world has been in a deflationary vortex since 1996, and the vile QE program contributed significantly to that vortex. 

The good news is that I’ve predicted gold enters a bull era in the summer of 2017.

For America, I’m on record predicting a December rate hike this year, and two more in 2017. 

These rate hikes will end the bank loan profits bear cycle and end the money velocity bear cycle.  That will create a new bull cycle in inflation.

In regards to inflation and rate hikes, some of the world’s greatest economists clearly have the same outlook that I do!

A fairly quick rise in US interest rates to even four percent could create significant problems for US stock market investors.  As inflation rises, lenders want a higher interest rate to compensate for that inflation.

If inflation were to rise significantly, it’s unknown what level of interest rate would be required to stop banks from moving enormous amounts of money out of government bonds and into the fractional reserve banking system.  Lenders may want vastly higher rates than they are getting now.

A US government bond market panic is becoming a potential event that serious money managers will need to think about very carefully.  I would suggest they start thinking about it… now.

Silver held its ground remarkably well during yesterday’s gold price decline, and that is also likely because the winds of inflation are beginning to blow. 

Silver’s price action on this short-term chart is impressive.

Many silver enthusiasts are frustrated with the gold versus silver ratio.  That frustration is understandable, but in a world where deflation is king, gold will always shine brighter than silver. 

In a world where inflation is king, silver takes the leadership baton from gold.

This is the GDX chart. Was the huge rally in gold stocks just a flash in a deflationary pan?  I don’t think so.  Fundamentals make charts, and the unfortunate truth is that Janet Yellen refused to raise rates this year, after promising four hikes.  That refusal to hike has delayed the end of the bank loan profits and money velocity bear cycles, and caused the swoon in gold stocks. 

The spectacular gold stocks rally in the first half of 2016 was likely a small taste of what is coming in 2017.  That’s because inflationary winds are set to blow much harder in 2017 than they did this year, and keep blowing harder for many years after that!

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