first majestic silver

Indian Gold Demand Shifts To Overdrive

President of Graceland Investment Management
November 11, 2014

Goldman Sachs is making more rational statements about gold stocks.  ‘The investment bank says 24 of the 27 gold operations under its coverage posted recoveries in line with its expectations – “which suggests to us that the vast majority of gold assets are now producing at steady state, and/or at least have their mills preforming [sic] consistently.”’ –Business Spectator News, Australia, November 11, 2014.

The bank recently issued a buy recommendation for Barrick stock, and while the price has slipped a bit since then, today’s update is good news for gold stock investors. 

gdx 1 year daily

That’s the GDX daily chart.  There’s a buy signal flashing now on the key 14,7,7 series Stochastics oscillator.

gdx 1 year daily bars

That’s another look at the GDX daily chart, with volume highlighted. 

Friday’s trading volume exceeded the 100 million share level, and was the largest in the history of GDX!

Over the past week, volume has been consistently gargantuan.  Is Goldman on the buy-side now? 

Their positive statements and recommendations for gold stocks, suggests to me that their huge client base is warming up to this key asset class right now.

gdx 1 month hourly bars

That’s the hourly bars chart for GDX.  Note the bullish inverse head and shoulders bottom pattern in play.

Price patterns that appear on hourly bar charts tend to be unreliable, and a similar pattern on gold has failed.

Regardless, GDX is close to long term HSR (horizontal support and resistance) defined by the 2008 lows. 

That gives this bottom formation a decent chance of helping send GDX higher, towards the $20 short term target zone.

hui gold bugs index 31-dec-2001

That’s a look at the HUI/gold ratio chart in the year 2000 – 2001 period. 

While gold went nowhere, gold stocks surged from late November in the year 2000, until the spring of 2001.

I think a similar situation is on the horizon now.  Is the Western gold community prepared to profit, if it happens?  I hope so!

When Indian gold imports were imposed in 2013, the current account deficit was about 5% of GDP.  Gold has been used as the scapegoat for causing that deficit.  Government corruption and oil imports are much bigger factors, but they are ignored by most fiat-focused analysts. 

Interestingly, Merrill Lynch economists are quoted by the Economic Times this morning, discussing the Indian current account deficit. “Given gold import curbs, the bank forecasts the current account deficit at a manageable 1.5% of GDP for the current fiscal at its house $100/bbl Brent forecast.”  -The Economic Times, November 11, 2014.

Incredibly, while praising the import curbs on gold, Merrill is using $100 Brent oil for their Indian current account forecast, when the actual price is under $85! 

I think that India may soon have a current account surplus, and pressure to ease Indian gold market restrictions will grow substantially, as the current account deficit shrinks. 

graphic government gold import rules

The good news is that some action is already being taken. 

The bottom line is that the Indian bullion bank cartel has always charged small jewellers large premiums for gold, and the Indian government finally seems willing to take action against the cartel.

That’s good news for the small jewellers, and good news for Western mining companies, because the lower premiums mean the smaller jewellers can buy more gold.

india 1 year daily bars

I’ve argued that India’s real current GDP growth is about 8%, and headed to 11% by 2017.  If that’s the case, why isn’t the Indian stock market surging higher?  That’s the daily chart of a key Indian stock market ETF.  It looks shaky now, but it’s rallied about fifty percent higher this year, and is vastly overdue for a serious correction.

gc 1 year daily bars

That’s the daily gold chart.  Note the beautiful and bullish posture of the 14,7,7 Stochastics oscillator, at the bottom of the chart.  Gold looks ready to make a successful charge at supply-side HSR, in the $1180 price area. 

Importantly, Indians tend to buy more gold, as rising GDP enriches them.  The stock market is not part of the Hindu religion, whereas gold plays a major role in it.  Gold, not stock market casino chips, will be where India puts their growing riches, and rightly so!  With Indian gold demand potentially moving into “overdrive” mode, most gold stocks appear ready to have a great year in 2015!

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