Gold And Japanese Reflation
Dec 18, 2012
- The election of the new Prime Minister of Japan, Shinzo Abe, may be a “watershed” event. His powerful commitment to unlimited quantitative easing could fundamentally jumpstart the next leg of the gold bull market.
- Please click here now. You are looking at EWJ-nyse, an iShares ETF. It is a proxy for Japan’s key Nikkei index. Japanese stocks have been in a bear market for more than 20 years, but this chart suggests that Shinzo Abe’s policy changes should not be taken lightly.
- EWJ just burst above F3, which is the 3rd fan line drawn from the $11.28 area high. When the price of an asset rises above the 3rd fan line, it usually signals the beginning of a significant move to the upside.
- EWJ is also close to breaking above HSR (horizontal support & resistance) near $9.50. Against the backdrop of the election of Shinzo Abe, the technical action of the Japanese stock market is very bullish.
- Japan is the world’s largest creditor nation, and the 3rd largest economy. If Abe is successful in forcing the Bank of Japan to embrace much more aggressive QE, it could spark what some major bank economists are already calling, “The Great Reflation”.
- Most QE watchers had written off gold recently, because they focused only on the QE4 unveiled by Ben Bernanke in America. The election of Abe is forcing them to re-think their analysis, as it should.
- Please click here now. That’s the daily chart for gold. I call the area above $1800 the “green zone”, because it potentially represents a new floor for the price of gold. If the Japanese stock market starts surging, it could create an institutional “risk-on” buying frenzy.
- When the price was above $1800 in 2011, institutions were already getting interested in gold and gold stocks. If Japan becomes a global inflationary force, rather than a deflationary one, they could become much more interested!
- Rightly or wrongly, large institutional investors view gold as a key risk-on asset, and a rise just to $1707 would likely usher in substantial momentum-based buying.
- Please click here now. You are looking at the weekly FXY chart. It is a proxy for the Yen. There is a massive head and shoulders top pattern in play, and the neckline has been penetrated.
- Abe is committed to knocking down the value of his country’s fiat currency, the Yen. His election probably ushers in an acceleration of the global fiat currency wars, and that’s more good news for gold investors.
- Gold stocks may benefit even more than gold does, as Japan prepares to take on the role of global “QE leader”. Please click here now. That’s the GDX daily chart, and I’ve highlighted the 15,9 series of the TRIX indicator.
- I refer to the TRIX as the “King Daddy” of technical indicators, because the moves that follow crossover signals tend to be enormous.
- When Ben Bernanke’s QE4 was greeted as the end of the road for American QE, I was a little worried that rather than flashing a crossover buy signal, the TRIX was starting to “flat line”.
- I’m not worried now. Shinzo Abe’s election is probably the fundamental catalyst that creates a powerful technical buy signal, for gold stocks.
- It’s hard to envision a “Great Global Reflation” without the participation of financial stocks. Please click here now.
- After falling about 90% in 2008, this IYG iShares fund of global financial services stocks rallied into HSR in the $54 area. From there, IYG “stalled”, and began an enormous consolidation.
- Now, an upside breakout has occurred, and I think it will rise to $80, and then to a new high above $125.
- It’s important to understand that the Japanese stock market is down about 75% from its 1989 highs. If a “Great Global Reflation” theme takes hold around the world, a new bull market in Japan could pull other global markets much higher, too.
- Japanese retail investors could also become very keen to own gold and gold stocks, if they believe that their Prime Minister is about to embark on an extremely aggressive QE program.
- What about junior gold stocks? Some have recently “popped 100% higher”, like the first pieces of popcorn in a popping machine.
- Some analysts have argued that a lot of mining companies have run out of money, and few investors are willing to finance them. That’s true, but if inflation replaces deflation as the global theme of institutional investors, the situation could reverse itself, very quickly.
- Please click here now. You are looking at the daily chart of GDXJ. Note the action of both the 10,9 and 15,9 TRIX indicators. They are exhibiting powerful buy signals. At this point in time, hedge funds that have shorted junior gold stocks are probably rethinking their strategy.
- I’ve argued that surprise is the theme of any super-crisis. The actions of Shinzo Abe may soon bring great surprise to most deflationists, and nice profits to gold stock investors!
Dec 18, 2012
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