Say No To Debt Ceiling Drugs

Gold has rallied more than $60 per ounce in the last few weeks. In the short term a new catalyst is needed to continue the rally, but the big picture looks fabulous.

India has a population of about 1.3 billion people, with the World Gold Council (WGC) noting that about 60% of them are under the age of 25.

The WGC appears to be significantly underestimating the pace of recovery of the nation’s jewellery market. Indian demand in the first half of 2017 has already exceeded demand for the entire 2016 calendar year.

Chinese demand is solid, and Turkey is becoming a potential third force of significant love trade demand.

To be sure it could be the fear trade in the West that pushes gold over $1300. I refer to the US debt ceiling as a floor, and President Trump has wondered out loud if a government shut down is needed to stop congress from passing the buck.

Unfortunately, Trump’s Treasury Secretary is in favour of passing the buck once again, but Trump has shown himself to be willing to stand up to anyone he feels is an obstacle to his agenda.

Trump’s next statement regarding the debt floor will be a key indicator as to whether fear trade investors can help gold retake the $1335 price area that was hit on the night of Trump’s election.

That rally was violently destroyed by the Indian government’s demonetization announcement. Conspiracy buffs will note that the demonetization announcement came just as it was clear that Trump had won the election.

Perhaps it was coincidence, and perhaps not. Regardless, the good news for gold bugs is that the news about gold coming out of India is now quite positive.

With a supportive love trade from India, China, and now Turkey, any US debt floor shock could create significant fear trade buying on the COMEX. That would almost certainly push gold to $1335 or higher.

This is the daily gold chart.

Note the position of my 14,7,7 Stochastics series oscillator at the bottom of the chart. In the short term, gold is overbought.

The lead line of the oscillator is at the 90 level. Gold bugs should cheer that the oscillator has a “flat line” event, and the rally continues.

Regardless, some profit should be booked into this price strength. Investors who place heavy bets against the commercial traders generally don’t fare very well.

It’s clear that these powerful commercial traders are selling and shorting gold with some size now.

That makes sense after a $60 rally. Gold bugs should book some profit while cheering for further gains. This is a simple approach, and a winning one!

The US dollar index gets a lot of coverage from gold analysts. Bank FOREX traders tend to focus more on the dollar versus the yen, and rightly so.

This weekly chart paints a picture of a weak dollar against the yen. Further weakness appears imminent. That’s good for gold.

This is an interesting gold versus dollar index chart.

Arguably, there’s a huge double-bottom pattern in play, with a neckline at the 14.44 price zone. The target of the pattern is the resistance in the 17 area. That would correspond with a gold price of about $1400.

Many gold mining companies have significant cost cutting programs in play. Many are in advanced stages, and that means that even a modest rise in the gold price can turn these companies into highly profitable “cash flow cows”.

This is the GDX chart. It has a solid feel to it, and the current “steady as she goes” rally looks better than the previous ones. Profit needs to be booked on this price strength, but very lightly!

A major upside breakout above $26 is likely to coincide with a key breakout above 14.44 on the USDX versus gold chart. Donald “The Golden Trumpster” Trump could be the catalyst that makes the breakout happen if he soon says “no” to any more US government debt ceiling expansion drugs!

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Stewart Thomson

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