Gold & Bank Stock Lovebirds Stewart Thomson
Mar 7, 2017
- A week ago I talked about the “need to bleed” for gold stocks. Since then, it could be said that the blood has flowed with gusto.
- Until the March 15 FOMC meeting is out of the way, gold and associated investments will be vulnerable against the dollar.
- Please click here now. Double-click to enlarge this GDX chart.
- As Chinese new year celebrations waned in February, GDX began trading in a modest broadening formation. Broadening formations tend to be resolved in a somewhat violent manner.
- In this case, the breakdown from that formation created a droopy right shoulder of an inverse head and shoulders bottom pattern. The shoulder is droopy because there is considerable market concern about the upcoming FOMC meeting next Wednesday.
- There is good news for gold stock enthusiasts, though. To view it, please click here now. Double-click to enlarge. The Fed’s first rate hike created an enormous rally in gold, silver, and associated stocks.
- That’s because rate hikes incentivize banks to move money out of government bonds, and into the fractional reserve banking system, where it can be loaned out aggressively.
- The result is a boost in money velocity and inflation. Gold stocks mount sustained rallies in that environment.
- In late 2016, Janet Yellen suggested an aggressive pace of rate hikes in 2017 would be her play, but most analysts didn’t believe her. After all, back in late 2015 she promised that there would be four rate hikes in 2016, and there was only one.
- Gold stocks swooned in mid-2016 when it became apparent that the rate hikes needed to boost money velocity would not be happening.
- A rate hike next week should quickly produce “Rate Hike Rally #3” for gold stocks. Also, I should note that the inverse H&S bottom pattern for GDX could become a double bottom pattern.
- Double bottom patterns create substantial fear amongst investors, more so than any other technical market pattern. For a double bottom pattern to be valid, volume needs to be less on the second bottom, and so far that’s the case with GDX.
- Tactics? I covered off some GDX short positions in the $23 area, and have started buying GDX in small size. Until the FOMC meeting is done, I’ll use my unique pyramid generator to systematically buy any further price weakness in GDX.
- Please click here now. Double click to enlarge. Gold bullion has not fallen much since arriving at my last selling area of $1265.
- It appears that gold will make a low somewhere between $1220 and $1200 by the FOMC meeting, and a rally will begin from there.
- It’s important to buy gold stocks and silver stocks around support zones for gold bullion. The buy size should reflect the size of the support. The $1220 and $1200 support zones are modest in size, so buy size should also be modest.
- For gold stocks to have the kind of sustained bull cycle that gets most gold bugs really excited, it’s going to take many more rate hikes and a reversal in money velocity.
- That has yet to happen, but Rome, and substantial inflation, are not built in a day!
- To view the rate hike oriented inflation building process in action, please click here now. When I first predicted that the Fed would taper QE to zero and begin a hiking cycle, I suggested that bank stocks would massively outperform the rest of the US stock market, and that would be followed, slowly, by a key reversal in money velocity.
- All is playing out according to my prediction, but gold stock investors need to understand that two rate hikes in two years are not going to produce a key reversal in money velocity. More hikes are required, and the good news is that more are coming!
- Please click here now. Double-click to enlarge. This chart of the BKX bank stocks index versus the S&P500 shows bank stocks have delivered the massive outperformance I predicted, and that’s after just two rate hikes.
- All gold stock enthusiasts should also be bank stock enthusiasts. Here’s why: In a market meltdown, banks tend to get gargantuan free money handouts from governments, albeit at the expense of working class taxpayers. They get food stamps, bowls of soup, and cracker crumbs.
- This makes the ability of banks to survive market downturns truly remarkable. The potential upside reward for bank and gold stock shareholders during a long term hiking cycle is fabulous.
- Gold stocks and bank stocks are like lovebirds. As the Fed steps up the pace of nominal hikes in 2017 and 2018, that hiking will make real rates (inflation minus the nominal rate) drop further. Money velocity should reverse by late summer, just in time for gold’s strong season!
Mar 7, 2017
email for questions: firstname.lastname@example.org
email to request the free reports: email@example.com
|Tuesday 23rd May 2017
Special Offer for 321Gold readers: Send an email to firstname.lastname@example.org and I'll send you my free “American Mining Muscle!” report. I highlight six key gold and silver stocks operating on American soil that are poised to make their stockholders great!
Updates Subscription Service: Note we are privacy oriented. We accept cheques.
And credit cards thru PayPal only on our website. For your protection
we don't see your credit card information. Only PayPal
|Subscribe via major credit cards
- or make checks payable to: "Stewart Thomson" Mail
to: Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario
L6H 2M8 / Canada
is a retired Merrill Lynch broker. Stewart writes the Graceland
Updates daily between 4am-7am. They are sent out around 8am. The
newsletter is attractively priced and the format is a unique numbered
point form; giving clarity to each point and saving valuable
Thomson is no longer an investment advisor. The information provided
by Stewart and Graceland Updates is for general information purposes
only. Before taking any action on any investment, it is imperative
that you consult with multiple properly licensed, experienced
and qualifed investment advisors and get numerous opinions before
taking any action. Your minimum risk on any investment in the
world is 100% loss of all your money. You may be taking
or preparing to take leveraged positions in investments and not
know it, exposing yourself to unlimited risks. This is highly
concerning if you are an investor in any derivatives products.
There is an approx $700 trillion OTC Derivatives Iceberg with
a tiny portion written off officially. The bottom line: