QE To Infinity Out. Gold Demand To Infinity In.

Bloomberg News reports that gold held in ETPs (exchange traded products) declined again, over the past week.  This chart is a view of these consistent outflows.

Gold is a timeless investment, and that means different themes dominate the market at different times.  In the 1970s, American investors dominated the gold market.

China & India were irrelevant to gold prices then, because they had no real purchasing power.  Chinese citizens were forbidden from buying gold, and India was simply too poor to buy significant tonnage.

The gold market staged a parabolic advance in 1979, because of Western citizen buying.  A horrible collapse followed in 1980.  Fearful Western investors sold because Paul Volker raised interest rates dramatically.  Indian citizens did buy gold all through the bear market that followed, but supply overwhelmed their demand. 

The rise in the gold price from 2008 to 2011 revolved around a quantitative easing (QE) theme.  Again, investors in the West were a key price driver, but buying from China and India increased tremendously.  Most of that Chindian buying revolved around a gold jewellery theme, rather than QE.    

Do most QE-oriented gold investors in the West fully grasp the ramifications of the massive increase in Chindian citizen demand for gold jewellery?  If they did, I don’t think they would fear a QE taper at all.

In my professional opinion, the Fed will taper QE to zero over the next 12-18 months.  Is that bearish for gold?  No.

Most of the weak hands in the gold market that bought gold based on a “QE to infinity” theme are gone.  When the taper starts, there simply isn’t much QE-oriented gold left to sell.

In 1980, an event like a QE “taper to zero” would have caused gold to crash.  In 2014, demand from China and India should more than offset all the gold that could be sold by QE-oriented investors.

In the 2014 – 2016 timeframe, the actions of people like Narendra Modi in the Indian gold jewellery arena are likely to be vastly more important to the price of gold, than the actions of Janet Yellen in the QE taper arena.  

That’s because physical demand versus mine supply is what ultimately moves the gold price in its primary trend. 

Growing demand from the enormous Chindian middle class is on track to totally overwhelm mine supply.  Incredibly, there are about 500 million Indian citizens that are under the age of 25.  The coming demand for gold, from this emerging gold buyer class is truly mind boggling. 

“QE to infinity” is on the way out, and GDI is in.  What is GDI?  It’s “gold demand to infinity”. 

On that note, please click here now.  The ground breaking ceremony for the enormous Kaloti gold and silver refinery is significant.  It’s probably more important to the “big picture” price of gold than Richard Fisher’s statements.

"It is time to taper,'' Dallas Federal Reserve Bank President Richard Fisher said in remarks prepared for delivery to the DTN/The Progressive Farmer AgSummit in Chicago.’ – Reuters News, Dec 9, 2013.

Ironically, Fisher’s tapering statements could be bullish for gold.  “Stephen Williamson, an economist at the St. Louis Fed, has conjured up quite a storm of controversy with his claim that quantitative easing could be deflationary.” – CNBC News, Dec 9, 2013. 

In my professional opinion, it is time to taper to zero, and the taper to zero is bullish for gold. 

From the standpoint of technical analysis, how does gold look?  That’s the daily gold chart, and there’s arguably a double bottom pattern in play.  The first low came near $1180 in June.  The second low could be forming now.  After struggling for several weeks, my stokeillator (14,7,7 Stochastics series) has produced a crisp buy signal, and the lead line is moving aggressively higher. The short term target suggested by the stokeillator action is $1305.  The double bottom target is about $1680. 

As the taper begins, banks purchase less US dollars with OTC derivative securities, putting pressure on the value of the dollar.  Outstanding OTC derivatives remain marked to model, so they are not deflationary. 

You are viewing the daily chart of the US dollar against the Indian rupee.  The dollar has broken down from an ominous head and shoulders top pattern.  A stronger rupee will encourage the Indian government to allow more gold to be imported, and that’s bullish for the price.

A QE “taper to zero” could create a significant sell-off in T-bonds.  That means higher interest rates, and higher interest rates can force struggling corporations to increase product prices.  Higher prices are inflationary, and inflation increases demand for gold.

Gold stocks should do well during a “taper to zero” event. That’s the daily chart for GDX.  The stokeillator has been “staggering” along in the oversold zone, but now it appears to be turning up into a more solid buy signal. 

There’s no question that ongoing tax-loss selling is a factor in price discovery right now, but there’s only a few more weeks to go, until 2013 is done. 

Gold mined from gold mines is the only way that growing and insatiable demand from the Chindian gold buyer class can be met.  Gold stock owners may be in for a very big positive surprise in 2014!

********

Special Offer For Gold-Eagle readers: Please send me an Email to [email protected] and I’ll send you my free “Top Taper Stocks” report.  Which gold stocks could be set to benefit most, from a taper to zero and global reflation event?  I’ll show you my favourite five!

Stewart Thomson 

Graceland Updates

Note: We are privacy oriented.  We accept cheques.  And credit cards thru PayPal only on our website.  For your protection.  We don’t see your credit card information.  Only PayPal does.  They pay us.  Minus their fee.  PayPal is a highly reputable company.  Owned by Ebay.  With about 160 million accounts worldwide.   

www.gracelandupdates.com

www.gracelandjuniors.com

www.gutrader.com

Email: [email protected]

Or: [email protected]

Rate Sheet (us funds):

Lifetime: $799

2yr:  $269  (over 500 issues)

1yr:  $169    (over 250 issues)

6 mths: $99 (over 125 issues)

To pay by cheque, make cheque payable to “Stewart Thomson”  

Mail to:

Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

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.

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:   

Are You Prepared?