Shanghai Gold Exchange Gets Shark Teeth

Today is expiry day for gold options.  I’ve suggested that gold is unlikely to begin a trending move until options on the June COMEX contract expire.

That’s the weekly chart for gold.  I’ve highlighted the price action that has occurred after the Stochastics oscillator (14,3,3 series) flashed a buy signal.

While gold is off to a bit of a disappointing start this morning, I think investors in the Western gold community should watch this oscillator closely now.  It’s moved into a position where significant rallies have occurred.

From a technical standpoint, senior gold stocks look similar to gold.  This weekly GDX chart suggests senior gold stocks are likely poised to begin a significant rally.

That’s another look at the same GDX chart.  I’ve highlighted all the key intermediate trend highs.

Since 2011, only once has GDX managed to rally above any of those highs.   The election of the new pro-growth government in India is good news.  It's one of two fundamental catalysts that could be behind the bullish technical set-up on the charts.

Another catalyst is the news that the Chinese central bank has granted approval to the Shanghai Gold Exchange (SGE) to launch a global gold trading platform.

In this news release from Scrap Monster, note the words that I’ve highlighted in gold.

Some members of the gold community may be nervous about the ramifications of inviting major Western bullion banks into the Chinese gold market, and rightly so. 

While the issue of manipulation on the COMEX and LMBA markets can be endlessly debated, there’s no question that gold in the West gets a lot of bad press.

Jiang Shu’s words that China’s strong gold demand is currently “only a number, not a power” make it clear that the new platform will be designed to put upwards pressure on the gold price. 

Gold is entering a new era, centred on gold jewellery demand in China and India.  

On the Shanghai platform, the banks will be expected to act with a level of professionalism that perhaps has not existed in their COMEX and LBMA operations.  I expect them to consistently endorse gold as an asset of the highest quality.  These banks will essentially provide the SGE with a set of gold price discovery “shark teeth”!

That’s the weekly silver chart.  From a technical perspective, the Stochastics oscillator looks superb. 

Like gold, silver appears to be in the process of gearing up for an intermediate trend rally.

That’s the daily chart of SIL-NYSE (silver stocks ETF). 

A bullish wedge pattern has become more apparent over the past few trading sessions, and the Stokeillator (14,7,7 Stochastics series) suggests a rally is imminent.

Junior gold stocks are the first love of most investors in the Western gold community.  That’s the GDXJ weekly chart.

I labelled the October 2010 period the “loss of sanity” zone, because of the widespread view that the Western world’s financial super-crisis was destined to catapult junior gold stocks into the stratosphere.

Note the red horizontal bars on that GDXJ chart.  Those mark intermediate trend highs.

It’s clear that junior gold stocks have not staged a single intermediate trend rally that has exceeded even one of those highs.

The bottom line is that for the past four years, the super-crisis and the “gold fear trade” have failed miserably, as a junior gold stock price driver.

Ironically, the “love trade” (gold jewellery) may be the price driver that creates even higher gold stock prices, in a more stable manner, than anything envisioned by even the most bullish super-crisis analysts!

I’ve highlighted the Stokeillator on this daily chart of GDXJ.  When the bullish posture of key oscillators on both the weekly chart and the daily chart are considered alongside the bullish fundamental news about the Shanghai Gold Exchange, I think Western junior gold stock investors are poised for a very positive ending to the 2014 calendar year!

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Stewart Thomson 

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