first majestic silver

Precious Metals: Patience Is Golden

President of Graceland Investment Management
November 14, 2017

Without growth in Western gold ETF holdings, the “decent but not spectacular” demand from China and India is not strong enough to move the gold price higher.

The SPDR (GLD-nyse) fund gold holdings currently sit at about 843 tonnes. There has been very little change in the total tonnage for several months. That’s neutral for the gold price.

Governments don’t like their citizens to own much gold. Restrictions they impose (like India’s import duty as a recent example) dampen demand enough so that the price rises very slowly most of the time.

Economic growth in China and India are increasing demand (the love trade) and mine supply is contracting, but the process is essentially “Chindian water torture” for investors who want to see the price skyrocket like it did in the late 1970s.

Investors that want “big action” in the gold price need to wait patiently for the US business cycle to peak.

For the price of gold to really sizzle, the business cycle needs to have an inflationary peak. That hasn’t happened since the 1970s. Many gold price analysts have used overlap charts that suggest the gold market now is akin to the 1976-1978 period.

I look at fundamentals first, and charts second. From an inflationary standpoint, the US economy looks more akin to the late 1960s than the late 1970s.

The winds of inflation are beginning to blow, but they won’t become a hurricane for some time. Having said that, I’ve noted that the St. Louis Fed has calculated that the QE program would have sent the US inflation rate above 30% if money velocity had been at normal levels.

The Fed is projecting seven rate hikes over the next 24 months, and Goldman Sachs projects there could be nine. I’ve predicted there will be six. Whatever the number turns out to be, it will likely be enough to move a lot of money into bank accounts.

As that happens, banks are likely to become very aggressive with new loans, because the fractional reserve banking system makes the potential reward worth the risk. The Fed’s new accelerated quantitative tightening program will also help push money into banks.

Odds are very high that money velocity begins to rise quite strongly later in 2018 and into 2019. The bottom line is that inflation could rise much faster than anticipated over the next 24 months. That could essentially create an institutional and retail investor stampede into gold. For now, in the $1200 - $1000 price zone gold is well-supported but sluggish.

I don’t expect that to change until money velocity moves higher, and that’s unlikely to happen until institutions see that the Fed is serious about consistent hikes and accelerated QT.

Trump’s tax cuts and tariffs can speed up the arrival of inflation, but the tariff action has been modest, and his tax cuts are bogged down in Congress and the Senate. The meandering gold price reflects this quagmire.

Gold’s technical price action also fits with the slow arrival of inflation. Bulls and bears are equally frustrated.

My investors are happy, because they get paid to wait. There’s no question that gold investors need to wait. If investors must wait for something, they should get paid with a bird in the hand, not just a promise of a bird in the bush!

Dividends are probably the least exciting type of investment for gold bugs. A lot of the stock market’s gains have really come from dividends, but few investors think about this fact.

Compounded 4% - 8% payouts can build significant wealth over time, and reduce the frustration of waiting for gold market “blastoff” moments.

The dollar-yen price action correlates strongly with dollar-gold.

There’s a bear wedge in play and overhead resistance at about 114. There’s also a potential Head & Shoulders Top formation. The dollar “should” fall down, but it may not happen until Chinese New Year gold buying begins and the Fed does its next rate hike.

This is the GDX chart. A beautiful bull wedge is in play and my 14,7,7 Stochastics oscillator is moving higher.

Unfortunately, without a rally in gold bullion, GDX is unlikely to perform as well as the bull wedge pattern implies it should.

Gold bugs have incredible patience and intestinal fortitude. That’s necessary because debt-soaked governments will do anything and everything to avoid paying the piper. I’ve described the $23 - $18 price zone as a key accumulation zone for investors, and GDX is in the upper part of that zone now. Buying gold stocks value is vastly more important than predicting the price, and that value is here for the taking in this key accumulation zone!


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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

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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:

In 1933 President Franklin Roosevelt signed Executive Order 6102 which outlawed U.S. citizens from hoarding gold.
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