Gold Surges While Stock Markets Implode

It’s the dawn of another day in the worst month of global stock market “crash season.”  Long ago, I defined global stock market crash season as the August 7^th to October 31^st timeframe. 

Investors who fail to exit general equity market positions by August 7^th each year take the reckless risk of watching most of their holdings get completely destroyed.

That’s because history’s greatest stock market crashes, including the 1929 wipeout, have occurred in the month of October.  Horrifically, many investors in the global gold community sold substantial amounts of gold stock at enormous losses in 2013, and put the proceeds into global stock markets.  My analysis shows that trend continued into August of this year.

In any asset class, the penalty paid for “chasing price” can be enormous.  That’s the monthly chart of the Dow Jones Transportation Average.

The uptrend line is broken, and it’s become resistance rather than support.  The 14,3,3 Stochastics oscillator, shown at the bottom of the chart, is rolling over in an ominous fashion.  If it declines under 80, a major crash could ensue.

Also, note the bearish change in my gold “swingograms” indicator.  I’ve circled it in red.  It’s been positive since 2012, and now it is flashing a sizable sell signal.  The “trannies” are in serious technical trouble, and they often function as a leading indicator for the entire US economy.

That’s a closer look at the trannies, using a daily chart.  The August lows have now been penetrated, on a closing basis.  Sell-side volume is beginning to surge.

America’s industrial companies are also in trouble.  That’s the daily chart of the Dow.  The August lows have also been penetrated, by yesterday’s price action.

In late 2013, I predicted the Fed would taper all the way to zero in 2014, and suggested that taper would turn the Dow into a “wet noodle”, while creating a rally in gold prices.  That’s the opposite of what most analysts thought would happen in 2014, and it’s exactly what has transpired.

The risk of a complete global stock market meltdown is growing now.  The Fed’s number two man, Stan Fischer, has thrown gas on the fire, by aggressively suggesting the Fed’s next move will be to raise interest rates.  To view his latest statements, please click here now.

In my professional opinion, the stock market has risen higher for the past 5 years on low volume, because US corporations have borrowed money at low interest rates, and bought their own stock with that money.  Higher rates will cook that golden goose, like rice paper gets cooked in a blast furnace.

I think many investors are assuming the Fed can engineer another huge stock market rally with further easing.  Instead, what they could experience is something more akin to an economic ice age. 

That’s the daily oil chart.  As the caption says, the situation for the US oil industry could become truly dire, as prices tumble.  A hike in rates could push oil much lower.  It could create a horrific implosion, of the only sector of the American economy that has shown any real gains in wages.

The enormous debts carried by Western governments is making the Fed’s monetary easing tools ineffective.  Unless governments move aggressively (and quickly) to reduce their debts, the Fed may be quickly forced to discuss gold revaluation with the US Treasury, and perhaps with other nations, including China.

While mainstream media focuses on the past rise in the US stock market, the reality is that gold-oriented China and India are the only nations showing real economic growth, with low unemployment.  This is a trend that I expect to continue not just for years, but for decades.

Please click here now.  This PDF document on the Shanghai Gold Exchange should be read thoroughly by all members of the Western gold community.  The Chinese government is clearly committed to increasing the amount of gold owned by Chinese citizens, in a major way.

I own substantial amounts of stock in Chinese jewellers, and I also use them as leading indicators for gold prices.  That’s because jewellers are the closest link in the supply chain to the largest source of consumer demand for gold.  I cover some of these individual jewellers in my Graceland Juniors newsletter, and they look bullish.

That’s the daily gold chart.  A week ago, I predicted gold would rally towards sell-side HSR at $1240, and that’s what happened.  It’s going to be a bit of a fit to surge towards $1270.

I think gold will trade at $1270, and higher.  That’s the weekly chart.  Note the incredibly bullish position of the price stoker (14,3,3 Stochastics) at the bottom of the chart.

The bullish technical position of gold is supported by great news about inflation in India this morning. 

The case to reduce interest rates in India is growing daily.  Here’s why that’s important:  Chinese citizens currently own about 5 grams of gold per person, compared with 25 grams per person in the West.  The Chairman of the Shanghai Gold Exchange has suggested that Chinese holdings, on a per capita basis, can rise to Western levels, and should be encouraged to do so. 

I believe Indian citizen holdings can grow at about five times the already-impressive rate that Chinese holdings can grow at, because Indians spend a substantially higher percentage of their income on gold than Chinese citizens do.  A decline in Indian interest rates can help boost economic growth, and hence boost gold demand enormously.  The import duties are meaningless now.  No serious gold player in India cares about the duties, which means that no serious investor in the Western gold community should care about them. 

Junior gold stocks are the darling of the Western gold community, and I have some great news for all GDXJ enthusiasts.  That’s the daily GDXJ chart. 

Note the beautiful buy signal generated yesterday by my gold “swingograms” indicator!  I circled it in green.  The last signal was on the sell-side, in mid-July.  My price stoker at the bottom of the chart has surged above the 20 line, also generating a buy signal.  The bottom line is that gold and silver are the ultimate assets, and now is the ultimate time to own the stocks that mine them!

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

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