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Gold Love Trade Brings Stability

President of Graceland Investment Management
May 6, 2014

Western bank economists continue to make very bold and aggressive statements about lower gold prices in 2014, based on stronger growth in America.

Their thesis is that stronger growth will trigger more ETF selling in gold ETFs.  These economists seem to assume that current Western investors are as weak-handed as those who

liquidated positions in 2013.

In contrast, I believe the bulk of Western investors who held gold through the 2013 decline can rightfully be described as “stoic”.

That’s a snapshot of the tonnage held in the SPDR gold fund.  There’s been very little change in the tonnage.  It looks solid, staying in the 780 – 820 tons zone in 2014.  It sits at 792 now.  I don’t see that number as a cause for any concern.

It’s possible that gold prices could move modestly lower during gold’s weak season, as it often does, but the market is supported by very powerful hands in both China and India.  

In 2013, the gold market moved on the selling action of investors focused on the “fear trade” (Western investors who originally bought gold because of fears that QE would crush the dollar). 

In 2014, the gold price discovery mechanism is based more on the “love trade” (Eastern weddings and cultural/religious events).  That’s a trend that I believe is only in its infancy.  The East is poised to import immense gold tonnage, in the years to come.

That’s the daily gold chart.  Note the blue channel lines that probably define gold’s current trend.  That modest rate of ascent is likely capable of producing 50% returns for gold stock investors, annually. 

I prefer to see gold rise modestly, because it doesn’t attract leveraged speculators.  Governments also tend to leave gold alone, when it draws little attention from the media.

In the very short term, gold could pull back a little bit, but that’s not a concern.  That’s the hourly bars chart.  Gold staged a key breakout over the $1308 area yesterday, and a pullback to the $1285 -$1295 price zone would be perfectly normal.  Watch the $1315 area closely.  A move above there should send gold to $1332 very quickly.

In 2014, if gold continues to rise at the current general rate of ascent, gold mining companies that have low production costs can make solid profits.

That’s the daily silver chart.  Silver staged a tentative breakout from a nice bullish wedge pattern early this morning.  Note the bullish action of my Stokeillator oscillator, at the bottom of the chart.

I’ve noticed that Western precious metals investors seem less afraid of lower prices now, and rightfully so.  The market is fundamentally solid.  Gold and silver have always been the strongest assets in the world, and the growing love trade is making them even stronger!

I’ve asked the gold community to be on the alert for gold to rise, on the release of a jobs report that shows over 250,000 new jobs being created.  Western money managers can move enormous amounts of liquidity, and when they are concerned about inflation, they move it into gold and gold stocks.  A large spike in jobs creation can be viewed as inflationary.  That’s bearish for the stock market, and bullish for gold.

On Friday, economists were stunned when the Employment Situation report showed 288,000 jobs were created.  Gold rose strongly on that news.  While M2 velocity is still falling, I think transition from deflation to inflation is clearly in play now. 

It’s only a matter of time (and probably not much time) before M2 velocity begins to move higher.  That’s good news for gold investors around the world.

Many analysts have noted the large flow of gold from London to Swiss refineries.   Western gold bars are refined into smaller ones, and shipped to China. 

Analysts have assumed this is bullish for gold.  The problem with their thesis is that Chindian jewellers are relying on Swiss refineries to meet their demand for gold.  Supplies can be cut off when banks don’t make enough profits from the bid-ask spread, or when government policy changes, as it did in India.

A new Dubai refinery may open the door to a more consistent supply flow of gold from Western mines to Eastern jewellers.  Dubai is known as “Offshore India”.  40% of the world’s physical gold flows through Dubai, but it is mainly gold that is refined in Switzerland.

Gulf News suggests that the new Dubai refinery will be a game changer.  With a capacity of 1400 tons, Dubai will soon be in a position to bring Indian jewellers enormous amounts of gold in a more direct manner, bypassing Western middlemen.

Saudi Arabia is the world’s fourth largest gold market, and the Chamber of Commerce there is working with jewellers to make the market vastly bigger and more efficient.

On that note, please click here now.  All gold stock investors should read this news article carefully.  Saudi gold dealers are limited in the tonnage they can import, because of government red tape.  The government has acknowledged this critical issue, and is working with the gold industry to fix the problem. 

I expect Saudi gold imports to grow at close to 30% a year, once that’s done.  Mine supply can’t grow at anywhere near the rates of demand growth that are already occurring in the world’s most important gold markets.  Governments in those markets are beginning to boldly embrace the gold industry.  This will produce even greater demand for gold from Western mines.

Western gold stock investors have nothing to fear from the bearish prognostications of bank economists.  That’s the GDX daily chart.  It feels solid, and my Stokeillator suggests that technically, it is solid.  The gold market bears keep talking about “one more trip down”.  In contrast, I don’t think fear is even relevant to the new gold era.  It’s going to be an era of comfort and stability, for Western gold stock investors!


Special Offer For Gold-Eagle Readers:  Please send me an Email at [email protected] and I’ll send you my free “Battle Of The Junior ETFs” report.  I compare all the junior gold stock ETFs, so investors can understand which ones are best for their individual investor profile!

Stewart Thomson 

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website:

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