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Gold's Gentle Price Correction

  1. From a technical, fundamental, and seasonal perspective, the current gold price correction is exactly what “the golden doctor has ordered”.
  2. Please click here now.  Double-click to enlarge this beautiful gold daily chart.
  3. Note the position of the Stochastics oscillator at the bottom of the chart.  It’s nearing oversold territory, as the gold price meanders calmly down towards key support that begins near $1225.
  4. The decline is not violent.  It’s orderly and calm.  I would call the price action idyllic. 
  5. To understand why the correction is so mellow, please click here now.  The SPDR fund (GLD-NYSE) tonnage rose again yesterday, to yet another multi-year high!
  6. The price correction is being met with consistent institutional buying.  I’ve predicted that gold will transition into an accepted asset for mainstream money managers. 
  7. That will reduce volatility for investors, and an atmosphere of confidence and happiness will quickly permeate most of the Western gold community.
  8. Please click here now.  Double-click to enlarge this monthly gold chart.  As gold declined towards the key $1228 - $1045 support zone in 2013, I labelled that zone as a massive buying area for gold investors.
  9. Gold spent about two and a half years in that price area, and then it charged up towards the first key resistance at $1307 - $1320. 
  10. From a purely technical perspective, a pullback towards the $1228 support zone is absolutely healthy and expected at this point in time.
  11. The SPDR fund tonnage would not be rising, and the price action would not be as gentle as it is, if major institutions were sellers now.  They are buyers, and as the price drifts towards the $1228 area, I expect them to continue to buy, and so I expect the price action to continue to be calm and orderly.
  12. Commerzbank reports that ETF holdings rose 19 of the past 20 days, and are up almost 90 tons just since the start of May.
  13. Essentially, the orderly gold price decline is being created by a combination of soft demand in India versus strong Western buying. 
  14. Once the monsoon season arrives in India (in about a month), I expect the gold price to begin rising again, as buyers there return to the market with size that is large enough to send shock waves throughout the Western gold community.
  15. Please click here now.  As robots replace human workers, governments are beginning to study the merits of a basic income for their citizens. 
  16. Many citizens are also clearly advocating the idea, and the idea is likely to involve a fair amount of money printing.  That’s good news for gold. 
  17. It’s still early in the “basic income” game, but I’ve predicted that the failure of QE to stimulate inflation will bring government orchestrated wage inflation and moderate gold revaluation.
  18. Please click here now.  I’ve also argued that traditional central bank policy can’t work with the current levels of government size and debt. 
  19. The influential Barron’s business newspaper suggests that the Indian government may be looking to load the country’s central bank with money printers.  If that happens, I expect Indian citizen gold demand to essentially do a “moon shot”.
  20. Please click here now.  Double-click to enlarge this GDX weekly chart.  The price action during this gold stock correction is as orderly as the bullion correction, and that’s very positive.
  21. A light pullback is in play from the $27 area resistance zone.  The uptrend line has been penetrated, but there hasn’t been any violent price action on the downside. 
  22. It’s important to remember that the gold sector rally caught most analysts in the gold community by surprise.  The buying has come from very strong hands.  That means they will engage in only light profit booking rallies, and buy aggressively on pullbacks.
  23. For GDX, I’m predicting that enormous institutional buying will appear in the $20 area.
  24. In the big picture, more governments are trying to turn their central banks into ATM machines.  There are forecasts for bumper crops in India, due to a great monsoon season.  Relentless institutional buying of gold stocks and bullion is in play.  This price correction should be viewed as a spectacular buying opportunity!     

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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