Is $1280 The New Floor For Gold?"

March 12, 2019

With little fanfare, gold is staging a nice consolidation in the $1280-$1350 price zone.

A breakout from this $70 trading range would usher in a fresh target of $1400 and perhaps $1420.

Note the superb position of the 14,7,7 series Stochastics oscillator at the bottom of the chart.

Its great positioning is just one of many reasons why $1280 could be the launch pad for the next significant rally.

Fundamentals make charts, and there are no long-term fundamentals more bullish for gold than the relentless growth of Chindian demand versus limited global mine supply growth.   

Most American investors are wasting time begging the US stock market to go higher, while the nation’s top institutional analysts are wisely focused on the incredibly bullish developments taking place in the Asian markets.

Chinese government stimulus, rising demand for copper, and rising corporate earnings across Asia are all creating a stock market rally that could become a serious barn burner.

That’s good news for physical market gold demand, which is good news for Western gold stock investors!

The US stock market situation is also positive for gold.

Most US stocks would have already melted far below their December lows if the Fed had not changed course so suddenly on rate hikes and quantitative tightening.

US first quarter GDP and earnings growth are likely abysmal, even after a major corporate tax cut, tariffs, ultra-low interest rates, and a mountain of stock market buybacks.

Morgan Stanley analysts believe US corporate earnings growth will fall to 1% in 2019 and I’ll suggest it would be negative if not for the stock market buybacks.

Without the Fed’s backstop and the corporate buybacks, the US stock market would probably be in free-fall right now.

GDP growth in China is 6%+ and in India it is 7%+.  The bottom line: Weakening growth in the West and solid growth in Asia is a win-win situation for gold.

This is the FXI-NYSE chart.

The Chinese stock market just completed a textbook pullback to the neckline of a double bottom pattern after an upside breakout.

With heavyweights like Morgan Stanley backing the rally, the Chinese stock market is likely headed much higher, and Asian investors will celebrate the upside action by purchasing gold. 

It’s mathematics as simple as 1+1=2.

Central bank buying is another important factor for gold demand… and it’s accelerating.

China’s central bank has resumed its monthly gold buying, and now India’s central bank seems to be buying consistently too!

This is the GDX chart.

The bounce from the $21.50 support zone feels “perky”.

Most intermediate and senior miners have made significant progress in cutting their AISC (all-in sustaining costs).

A rally in bullion to above $1400 would turn many of these miners into “cash cows” and open the door to sustained institutional interest in the sector.  That’s the main reason why I’m adamant that the entire $23 - $18 price zone for GDX is such an important buying area for investors!

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Minting of gold in the U.S. stopped in 1933, during the Great Depression.