Mid-East Change: Oil And Gold Rally Catalyst

The case for gold ownership is not any weaker or stronger now, than it was a thousand years ago.  Gold is the world’s ultimate asset, and that’s irrespective of whether the price is currently rising or falling.

Currently, most commodity indexes are dominated by oil, and game-changing events in the mid-East region are poised to occur in 2016. 

Gold tends to track oil very closely.  I expect oil to stage roughly a 50% - 100% rally from the 2015 lows, over the next 18 months.  Here’s why:

American politicians appear to realize they’ve been overly aggressive in Syria, Iraq, Libya, Egypt, and in the entire mid-East region.  The US policy of regime change there has clearly been disastrous.

As Western politicians begin to back away from that policy, a door is opening for Russian and Chinese politicians to become serious mid-East players.

A number of powerful institutional analysts have the same view that I do.  Interviewed by Barron’s, Larry Jeddeloh predicts that an Iran-Saudi deal is coming, whereby Iran stops backing the anti-Saudi rebels in Yemen, and in return the House of Saud announces a major cut in oil production.

Russia, Iran, and Saudi Arabia all want a higher oil price, and that deal would do it.  I expect a deal will be signed in 2016, and create a major rally in oil and gold.

Another huge beneficiary of this deal would be the country of Canada.  While rest of the West focuses on economically useless programs like QE, the new Canadian government is poised to ramp up infrastructure spending.

QE creates a drag on money velocity, by funnelling printed money into bank and government coffers.  That forces elderly citizens to engage in dangerous risk taking with their savings.  

Until US banks are incentivized to make profitable loans with higher interest rates, America will continue to burn the savings of its elderly citizens, like burning rice paper in a “risk-on blast furnace”.

Regardless of America’s chosen path, Canadian oil stocks should have a truly spectacular rally in the second half of 2016, and I’m an eager buyer, here and now.  

Historically, gold tends to rally after the Fed’s first rate hike, and the dollar tends to weaken.  I’ve suggested throughout 2015, that gold could remain “generally soft”, until Janet Yellen pulls her rate hike trigger.  If the first hike comes at the December 16^th meeting, and I think it will, early January could see an institutional rotation out of general equities, and into gold stocks.

That’s the daily gold chart.  Note the beautiful technical action of my 14,7,7 Stochastics series oscillator, at the bottom of the chart.

I refer to that oscillator as “Tony the Tiger”, and Tony is flashing a crossover buy signal now.  Gold is firming nicely.  A move above the 20 line by that oscillator, would be more good news for gold price enthusiasts. 

The most likely scenario for gold, in the short to intermediate term, is a double bottom pattern, ahead of the mid-December FOMC announcement.

I think it’s important for the entire Western gold community to be open to the idea that in the mid-East, and in the global gold market, BRICS countries are going to fix what America broke. 

The Shanghai Gold Fix is coming within a few months.  That will move more price discovery away from Western economic events, and towards Chindian jewellery demand versus mine supply.  In early 2016, Chinese New Year celebrations could also add some serious zest to a post rate hike rally in gold.

When all is said and done, India is the world’s main demand-side driver of the gold price.

Mines are the main supply-side driver.  New discoveries are becoming smaller, as gold-obsessed India begins to industrialize at a mind-boggling pace.  In the next few years, while the rest of the world languishes in a QE-induced quagmire, Indian GDP could hit 10%!

Jewellers are in expansion mode, refiners are racing to expand capacity and get LBMA certification, and the citizens are building more wealth, which they celebrate by demanding more gold.

Also the media drama surrounding Indian gold monetization and paper gold bonds is over, and the surge in Indian refining of raw Dore gold is rightfully taking centre stage.  There’s a shortage of Dore bars, and Indian refiners are eager to sign contracts with gold miners.

That’s the GDX daily chart.  Gold stocks are staging a very interesting technical non-confirmation with gold bullion.  Gold has moved decisively below its summer lows, while many gold stocks are well above their lows.

Volume is also very positive; it’s been declining on price softness, and rising with price strength.  Overall, there’s been a huge surge in volume in gold stocks since early July.

The average American investor in the gold community has a lot on their plate.  My suggestion is to stay focused on the relentless industrialization taking place in India, the shrinking mine supply, and on the highly significant non-confirmation taking place, between gold and gold stocks.  Keep it simple.  Stay focused on gold stocks more than the bullion, for a winning year in 2016!

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