first majestic silver

What's Driving Gold Now?

President of Graceland Investment Management
December 2, 2014

Gold enthusiasts around the world are trying to figure out what just happened in the gold market.  The price action has been dramatic, and I think I can shed some fairly bright light on the situation.

The general consensus is that the price of gold fell on Friday, due to anticipation of a Swiss citizen rejection of the “Save Our Gold” campaign.  The Swiss vote went as anticipated, but by Monday morning, gold had soared $80, and silver had surged $2.

How can this bizarre price action by explained by the events in Switzerland?  The likely answer is:  It can’t.  In the big picture, events in India have always been a key driver of gold prices.  It appears that India is also now becoming the main short term driver of the price, and rightly so, in my professional opinion. 

He and she who have the most gold, should make the most rules, and India has the most gold.  Thus, the front lines of what I call the “gold bull era battlefield” are no longer in America, but in India.  In time, I think central bank governor Raghuram “Raj” Rajan will be recognized as the world gold community’s Trojan horse.  By the time he retires, Raj is likely to be remembered as the greatest central banker in the history of the world.  Raj killed the 80-20 import/export duties rule on Friday, and what that did, in the immediate timeframe, was allow supply coming into India to increase.  The COMEX price decline on Friday was more likely a quick response to the actions of Governor Raj, than to events in Switzerland.  Simply put, the price of gold is being determined, more and more, by the demand/supply ratio in India.

reserve bank of india

The Indian government has been pressuring Governor Raj to increase the restrictions on gold.  Instead, he’s reduced them, and there’s more good news for gold price enthusiasts. Econoday News reports that Governor Raj left rates unchanged at 8% today’s policy meeting.  Here’s why he did that:

He’s sending a statement to the government that fiscal policy, not monetary policy, must lead the way forwards to a lower rate environment.  The government must do more, and if it does, Governor Raj will cut rates early in 2015.

Governor Raj and Narendra Modi are the world gold community’s greatest allies, and that will become very apparent over the next twelve months.  Modi is the supercharged engine driving an economic boom that will dwarf anything China has achieved or will achieve.  Raj is the governor that makes sure nothing gets out of control. 

The incredible wealth that Indian citizens build, will be used to buy near-incomprehensible amounts of gold jewellery, sourced from the mines owned by the Western gold community.

Raj is looking for inflation in the 4% range by 2016, and great fiscal responsibility from the Modi administration. This tells me he will be cutting rates over the next two years, while the Fed raises them. 

Bill Dudley is president of the New York Federal Reserve bank.  He just issued what I consider the strongest indication yet that the Fed will raise rates, even if that causes stock and real estate markets to crash. 

Western mining stocks are going to soar as India gets immensely richer, and imports astronomical amounts of gold to celebrate.  Unfortunately, America is not set to fare quite so well, to put it mildly.  America could essentially implode, as the price of oil tumbles much lower, in the second half of 2015.  Oil supply is beginning to overwhelm demand, and the imminent Fed rate hikes will only add fuel to the lower oil price fire.

There’s more bad news for America.  Oil-related bonds make up about 15% of US junk bond markets. 

Those bonds are already in trouble.  They could collapse, triggering a nationwide collapse in US real estate and stock markets.

Even CNBC admits that India is the world’s largest beneficiary of lower oil prices, noting yesterday that 67% of the nation’s current account deficit is caused by oil imports. 

I predict that India will have a huge current account surplus by 2016, and gold import duties will go the way of the dodo bird.

It’s apparent to me that Governor Raj is not interested in playing tiddly winks with the Indian government.  He’s his own man.  Why should Raj cut rates, if the government refuses to cut the duties on gold?  These duties are no longer economically justifiable.  They have put control of one of India’s largest industries into the hands of the mafia. 

India’s finance ministry had been pressuring Raj to increase restrictions on gold, and cut rates.  Instead, he killed the 80-20 rule and refused to cut rates.  The bottom line: Indian government officials tried to play hard ball with Raj.  He responded by introducing them to my favourite game: Rock ball.

Let’s take a look at the technical side of the gold market, and see if the charts support the fabulous fundamentals. That’s the hourly bars chart for gold.  There’s support for gold in the $1190 area, and a pullback is needed after yesterday’s incredible price advance.

gold price support

With hourly chart support at $1190 and daily chart support at $1180, gold feels solid.  It’s poised to rally to the $1240 - $1255 target zone.

gold price

That’s the daily chart of a very dangerous investment vehicle, DUST-NYSE.  It has caused a lot of damage in the gold community.  DUST was designed for professional day traders, not for amateur gold community investors suffering from gold stock drawdowns.  Investors looking for a “quick fix” have purchased DUST, which is a triple-leveraged bet against GDX.  Substantial pain has followed, as is clearly evident on the chart.  It’s a highly inefficient vehicle to capitalize on gold stock price declines.  The massive head and shoulders top pattern now in play suggests it may face a reverse split, and could be delisted from the exchange.  Investors have better odds gambling in a casino than purchasing dangerous items like DUST. 

silver price chart daily

That’s the daily chart for silver.  The downtrend line from the $21.50 area is being tested.  A bullish inverse head and shoulders bottom pattern is “under construction”.  Be alert for an upside breakout, to trigger a strong rally to my $17.85 target zone!

GDX weekly chart

That’s the weekly chart for GDX.  Note the superb upside breakout from the downtrend line. 

This breakout “meshes” perfectly, with the action I’m seeing on Indian and Chinese jewellery stock charts, and with the hugely significant elimination of the 80-20 rule by Governor Raj.  The gold bull era is underway, fuelled by the potential destruction of America and the miracle of India.  For the gold community, there has never been a better time to be alive than now!

Special Offer For Gold-Eagle Readers: Please send me an Email to [email protected] and I’ll send you my free “Junior Rocket Rides!” report.  I’m predicting a 50% rally in gold stocks in early 2015.  Learn which five junior gold stocks may be poised to soar highest, and how to play them!

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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:  

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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: www.gracelandupdates.com.


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