Gold: China Is Back In The Game

January 8, 2019

It’s time for the queen of assets to rest and consolidate. Nothing goes up in a straight line, and that’s certainly true for gold!

This is the daily gold chart.

A pullback to about $1250 would be a healthy 50% retracement of the $100 rally from $1200 to $1300.

Gold begins 2019 with some very positive news in play. After a two-year hiatus, China’s central bank is back in gold market action!

The bank had been consistently buying about 15-20 tons of gold a month. When those purchases are added to buying from Russia and other central banks, they are quite price-supportive.

It’s great to see China back on the buy, and analysts in India are projecting a ramp-up in gold imports there of about 20% for the first six months of 2019.

The ECB (Europe’s central bank) is projecting higher inflation and easing growth for 2019.

The love trade is healthy, the central bank trade is healthy, and global stock markets are on the rocks.

I’m a bit worried that the US stock market rally could peter out quickly.

Institutional money managers are cutting back their allocations to US equities, and rightly so.

The business cycle is entering the eighth and ninth innings, wage inflation is poised to spike in full-time jobs, and earnings have clearly plateaued.

China’s central bank and government have vastly more “wiggle room” than America’s do to stimulate the economy.

China’s stimulus is inflationary, and that’s good news for gold.

The US government is shut down. That’s not a position of strength, to put it mildly. These shutdowns have happened so many times that citizens are now numb and don’t seem to care.

It’s not a good thing; the government just can’t seem to break its addiction to borrowing more and more money.

The US government has been very vocal in its opposition to the modest interest rate rates from the Fed. I don’t see any economic stress from these hikes, and senior citizens have been paid nothing in their savings accounts for years.

Rate hikes are an indicator that inflation is in the air. They haven’t hurt gold, they help senior citizens, and they put pressure on banks to make business loans rather than finance stock market buybacks to enrich corporate directors.

Rate hikes do put pressure on the ability of the US government to borrow ever-more money, and that pressure is good.

This is the daily silver chart.

The uptrend is solid. A pullback is normal, expected, and healthy. Note the Fibonacci lines in play around the demand line of the uptrend channel.

Silver feels almost as solid as gold does right now, and that’s likely due to the growing threat of stagflation throughout much of the world.

This is the nice GDX daily chart.

Like most sectors of the precious metals asset class, GDX is taking a breather after it successfully penetrated key resistance in the $20.70 area.

From a technical perspective, the range trade in the $20-$21.50 area has a 67% chance of being resolved with a rally to $23. The current consolidation could be the last opportunity for excited investors to buy in this price zone before GDX moves above $23 and stays there for quite a long period of time!

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The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.