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The Inflation-Adjusted Price Of Gold

April 12, 2016

  1. The price action continues to be superb for most mining stocks held by the Western gold community. 
  2. Now, silver bullion is poised to join the upside fun.  That’s an indication that the current rally will enter its final stage.  The final stage of a major rally in any investment class can produce truly spectacular gains for investors.
  3. Huge value-oriented funds are buyers of an array of gold stocks, and so for the past few weeks I’ve suggested that if there has ever been a time for the average Western gold community investor to “chase price” in the gold stock sector, that time is now.
  4. To view the big gold stocks picture from a technical standpoint, please click here now . Double-click to enlarge. This weekly GDX chart shows the development of a massive inverse head and shoulders bottom. 
  5. Once the right shoulder is completed by a brief pause in the $23 - $28 area, GDX should surge to my $33 - $40 target zone.  The bottom line is that good times are here, for gold stock enthusiasts across the world!
  6. Please click here now .  Double-click to enlarge.  This daily chart shows silver poised to burst up from its own inverse head and shoulders bottom, and race towards my $18 target zone.
  7. Both the Bank of Japan (BOJ) and the US Central Bank have major announcements coming on April 27.  HSBC economists are forecasting that Japan could announce what I’ve dubbed a “QE For The Citizens” program.  The BOJ may actually print money and give it to the citizens to spend.  That’s very inflationary.
  8. Institutional buying of gold stocks in anticipation of such a program may be adding fuel to the current “rocket rally”.  Also, savers are one of the main backbones of capitalism.  I think Janet Yellen probably wants to raise rates in America on the same day that the BOJ’s Kuroda announces what is essentially a helicopter money drop.
  9. A rate hike in America on April 27 could cause a horrific US stock market sell-off.  Janet’s first rate hike caused a major equities market meltdown, and a surge into the yen and gold. 
  10. A second hike, against the background of helicopter action in Japan, could see the yen ignored as a safe haven.  Gold and silver may stand alone, as the safe havens for institutional liquidity flows.
  11. US T-bond yields have been in a bear market for about 35 years, just as T-bond prices have been in a 35 year bull market. 
  12. When yields enter a bull market, it’s generally reflected in the gold price as a ratio against the US monetary base.Please click here now . That’s the gold versus money base long term chart, courtesy of 
  13. It can be argued that gold has not experienced a real bull market since the one that ended in 1980.  That’s because it’s only when T-bond yields enter a real bull market that the inflation-adjusted price of gold enters a major bull market, measured in US dollars.
  14. To further understand this concept, please click here now .  Double-click to enlarge.  That’s another chart.  It shows the inflation-adjusted price of gold over the long term.  I’ve annotated it with an inverse head and shoulders bull continuation pattern. 
  15. The rough target of the pattern is $3200+.  A breakout above the neckline would likely coincide with a surge in the US inflation rate, and with the start of a new bear market in US T-bond prices.
  16. Was the entire gold price rally during the 2000 – 2011 time frame really just a giant bear market rally?  Well, when viewed on the gold versus money base and inflation-adjusted price charts, the answer is probably:  Yes. 
  17. The good news is that rising inflation is now launching a new major bull market for gold in inflation-adjusted prices, and against the US money base.  That’s why gold stocks are staging such a stunning performance against all fiat currency, and against gold too!
  18. Please click here now . Double-click to enlarge.  If gold is beginning a fresh inflation-adjusted bull market, gold stocks are likely only beginning what could be a multi-decade period of dramatic outperformance against fiat currencies and gold bullion.
  19. There is no price driver that gets an institutional money manager more excited about gold stocks than inflation.  There’s too much risk involved in placing bets based on geopolitics, short term Fed programs, and other events involving great fear.  The inflation trade for gold is best described as a kind of hybrid of both the love trade and the fear trade.  It’s something that money managers can quantify, discuss with institutional investors in a calm manner, and get solid response from those discussions.
  20. The new bull market in gold stocks versus gold marks the end of a 20 year bear market, and if the main theme is going to be rising inflation, then other key commodities will be signalling higher prices too.  On that note, please click here now . Double-click to enlarge.  That’s the daily oil chart. 
  21. Oil is the largest component in most commodity indexes.  Mike Rothman is the former top energy analyst for both ISI and Merrill Lynch.  His influence in the institutional investor community can be substantial, and he just outlined a case for a 100% increase in the price of oil by the end of this year.  The technical action I see on the chart supports his solid fundamental thesis.  I predicted oil would begin a major rally from the green trend line I put on the oil chart, and that appears to be exactly what is happening.
  22. Please click here now . Double-click to enlarge this daily gold chart.  One item of minor technical concern is the small head and shoulders top pattern that has appeared.  A similar top pattern appeared on gold stock ETFs, and it was destroyed as they rocketed higher over the past few days.
  23. Sometimes gold stocks lead gold, and sometimes gold leads the stocks.  The good news is that even if there is a pullback in the gold price, the inflation focus of large value fund managers, Kuroda’s money drop helicopters, European NIRP policy, and another stock market panic in America are all likely to combine, and make that pullback very short-lived. 
  24. Eager gold stock enthusiasts can confidently buy more of their favourite gold stocks on every ten dollar pullback in the price of gold, and do so in the welcome company of many of the world’s most powerful money managers!


Stewart Thomson   


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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