Yen Massacre & Gold Muscle

In January of 2011, I swapped a fair amount of physical silver bullion for physical gold bullion.  A couple of weeks ago, I reversed the swap.

When I first did the swap in 2011, silver was trading above $30.  I wasn’t trying to call any tops or bottoms.  Gold simply offered more relative value to me at that period of time than silver did.

Likewise, I’m not really interested in predicting that silver has “bottomed” against gold, at this point in time.  Silver simply appears to offer more relative value to me now, than gold.

While silver is a mighty metal, it’s not for all investors, especially when bought with size.  It’s much more volatile than gold.  It can trade as wildly as sugar or natural gas. 

Most amateur investors should invest in gold first, and buy silver after they have built a “foundation of comfort” with gold.

That’s the daily silver chart.  A rally just up to overhead HSR (horizontal support and resistance) at about $18.70, is quite a sizable move.  I’ll be booking some profits in that target area, if it is acquired.

Note the position of my price stoker (14,7,7 Stochastics), at the bottom of the chart.  Rallies tend to begin from a point below 20, which is where the lead line is now.  A post-jobs report rally of size is quite likely.

Gold itself continues to face modest headwinds from the crashing Japanese yen.  I’ve predicted that a global fiat crisis is coming, and that it would begin in Japan.  By 2016, I expect it to begin enveloping most of the Western world. 

Relatively speaking, Japanese QE is much bigger than American QE ever was, and it’s taking a toll on the yen.  That’s the daily chart of the US dollar versus the yen.  The price stoker suggests that the dollar’s rally may be peaking, at least for now.

While the dollar has mauled the yen, gold has only moved marginally lower.  That’s because Chinese jewellery buying has increased again.  I trade the leading Chinese jewellery stocks on my junior stocks site at www.gracelandjuniors.com.  They have been displaying sideways to bullish price movement.  Diwali in India is also in play.  Demand there has returned to seasonal norms.

Because the US dollar is the reserve currency of the world, it can take the most amount of “money printing damage”, before it crumbles against gold.  The US dollar can be viewed as the lead aircraft carrier, in a fiat carrier strike force.  The smaller battleships, like Japan and Europe, are now experiencing significant damage.

Unfortunately for the fiat carrier strike force, their opponent can be viewed as a gold jewellery bull era starship, with India’s gold-obsessed citizens at the helm. The formation of the gold jewellery era is not an overnight event.  

The ice age of paper currency has begun, but the movement of the ice is not visible, to the naked fiat eye.  

That’s the daily gold chart.  It’s clear that despite the massacre of European and Japanese fiat, the dollar has barely moved gold lower at all.  It’s only marginally below the $1180 area lows.  That’s the power of gold jewellery demand growth, a power that is in its infancy.

That’s the daily oil chart.  Profits for Canadian oil producers in the tar sands are shrivelling now, and US “frackers” are entering the pain zone.  Canada is America’s largest trading partner. 

A meltdown in the Canadian economy could kill the US economic rally.  That’s the daily chart of the US dollar versus the Canadian dollar.  With oil prices falling hard, the Canadian dollar is weakening dramatically.

Worse, I expect the Fed to stun global stock markets in 2015, perhaps as early as January, with rate hikes.  All roads lead to gold jewellery and the Western mining stocks that source the gold, but does anyone really understand?  I’ll be in my favourite Chinese gold jewellery store tomorrow, celebrating the new era with some quality purchases of 24 carat items.  In Canada, gold jewellery can be insured and stored in regular safe deposit boxes, without violating any of the terms of storage.  It’s best to check with your bank before proceeding with a transaction.

That’s the daily natural gas chart.  It looks spectacular. 

That’s a chart from the United States Energy Information Administration.  America is entering the winter season with abnormally low natural gas supplies. 

I bought oil into the 2008 lows.  When I swapped that oil for natural gas a few years ago, most observers thought I was a lunatic.  To make big money in a market, the investor needs to have a lot of patience, a stomach for enormous drawdowns, and have the intestinal fortitude to accumulate positions into the depths of their “personal surprize zone”.

The natural gas asset is potentially poised to move 100% higher, or more, given the supply issues and the long term weather forecasts for another bitterly cold winter on the East coast of the United States.  Higher heating costs could also chop GDP, like they did last year.

I can’t even imagine being heavily invested in global stock markets in a situation where heating costs are soaring, GDP is tumbling, and the Fed is hiking interest rates, but “to each his own”.

That’s the GDXJ daily chart.  I’m looking for a sizable rally to begin very quickly.  Yesterday’s price action was particularly encouraging, with gold trading about five dollars lower, while junior gold stocks marched nicely higher!

Note the position of the price stoker.  Not every signal produces a big rally, but if the Swiss vote “yes” in the upcoming referendum, the GDXJ rally that follows could be record size.

For 2015, I’m ready for a cold winter, a Fed that electrocutes global stock markets, and the next leg in the gold bull era, featuring higher prices for gold stocks!

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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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