US Stock Market Danger And Golden Goodie

Under Trump, it can be argued that the US economy (which is separate from the Wall Street casino) is experiencing a degree of normalization. 

Top economists give him credit for corporate tax cuts and deregulation.  At the same time, the US central bank is also pursuing a policy of normalization that began with Yellen.

As I predicted, this normalization has seen the stock market begin a topping process while inflationary pressures become more evident.  This topping process will now accelerate, as will the inflationary pressures.

This is the disturbing weekly Nasdaq100 index chart.

Note the ugly non-confirmation taking place between the RSI oscillator and the price.  For decades I’ve urged investors to hedge themselves or sell as the US stock market “crash season” begins at the start of August.  It lasts until the end of October, and I recommend rebuying then. 

As stock market heavyweight Mike Wilson notes in his interview yesterday, the US stock market selling has just begun!

While US stock markets are set to swoon and perhaps crash, the rise of China/India and the normalization of America is producing a new era for gold. The wild fear trade of the past is being superseded by a theme of general respect for the asset.

Chinese and Indian gold investors do invest in the global fear trade for gold.  That’s a big part of why they buy, but their understanding of gold is highly refined.  Their analysis is wise and subtle.

The growing dominance of Chindians in the market is producing a much calmer investing experience for Western investors who are feeling this wonderful golden vibe!

Out with the old (fear trade of the West), and in with the new (love trade demand of the East)!

To Vanguard’s credit, I will note that it is restructuring its fund to gain exposure to the general equity markets, but with a commodity-oriented theme.

Official Indian imports would be over 1000 tons for fiscal 2018 if the rupee had not been temporarily derailed.  If free (black) market demand is included, the total imports are probably in the 1200 – 1300 tons area. 

It’s a bird!  It’s a plane!  It’s the gold bull era’s superman!  Since being appointed as “interim” finance minister of India, Piyush Goyal is pumping out so many pro-citizen and pro-business tweets and announcements that he makes Donald Trump look like a turtle swimming through a pool of end of empire molasses, and Trump himself can be considered a pro-business racehorse!

If Goyal continues to reduce the drag of government on citizens and businesses, my prediction that India will hit 10% GDP growth and 1500 tons of total annual gold demand in the next 18 months will likely become a “done deal”.

Let’s view what may be the world’s most important chart.  Gold stocks have surged against gold and held their ground against US fiat while bullion has fallen about $170 an ounce!

While earnings, AISC, and cash flow numbers have turned negative for many gold miners, most of them continue to look good against gold and are holding their recent lows against the dollar. 

GDX would likely be trading around $10 a share right now if institutions were buying or selling just based on earnings and other financial reports about the component companies.

Why is this strange price action happening?  Why is GDX trading above its February low even though gold has moved so much lower?

Well, the most reasonable explanation is that savvy institutional power players are looking beyond the short term earning hits.  They are focusing on the rise in inflation in the West. 

This interesting gold market action is occurring just as the horrific action of the main US stock market sectors begin to suggest that general equities are already in a rolling bear market and poised to begin something much more sinister. 

The US stock market could soon become an inflation-oriented quagmire that would greatly resemble the markets of the 1970s.

This is the gold chart.  Gold is oversold, but the 14,3,3 Stochastics series is flatlining.

This tends to happen when investor sentiment becomes weak but physical demand in China and India has yet to strengthen.  It creates an incentive for smart commercial traders on the COMEX to cover short positions but not to buy many longs.

Another great gold chart.  From both a fundamental and technical perspective, nothing is happening in the gold market that is unexpected. 

If the current gold price sale ends in the $1200 - $1180 area it would give the right side of the huge inverse head and shoulders pattern almost perfect symmetry with the left side.  The personnel changes in India’s finance ministry and the rise of inflation in America (as the stock market peaks) are fundamentally in tune with the big picture technical action for gold.  A joyous bull era is poised to begin, with good times for all gold investors!

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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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