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The Fed & China: rally time for gold

Commentaries & Views

July 25, 2023

  1. While tomorrow's US interest rates announcement can help push gold to key short-term buy or sell zones, the big picture for gold is mainly about Chindian citizen demand versus mine supply.

  2. Western gold bugs wait eagerly for BRICS governments to announce a gold-backed fiat to compete with the dollar.  The citizens of China don't have time to wait for governments who move slower than Godot when it comes to doing anything good.

  3. Chinese citizens have already made gold their de facto personal currency and central bank.  Here's the bottom line: Demand for gold is surging in China and that's putting a major floor under the price!

  4. Chinese citizens are also the world's biggest gamblers.  A surging stock market puts investors in a joyous mood, and they celebrate by buying enormous amounts of gold.

  5. A massive inverse H&S pattern is in play for the Chinese stock market.

  6. The FXI is essentially the "Dow" of China.  A surge from the right shoulder low could begin today and after some volatility around the Fed announcement, gold is likely to follow the FXI. 

  7. In addition, if Jay's speech is dovish, then gold, silver, and the miners could quickly look like Apollo rockets headed for a fiat priced moon!

  8. China is ready to transform from a property-oriented economy into what is best described as a super-sized Silicon Valley.  That's going to put an even bigger floor of demand under the price of gold.

  9. Double-click to enlarge.  Oil is breaking out to the upside.  My $93 medium-term target (at two converging trendlines) looks increasingly likely to be hit.

  10. Surging oil means surging pump gas, and oil is also the biggest component of most commodity indexes and ETFs.  Institutional buying there can drive up the price of other commodities. 

  11. Meantime, the Fed is unlikely to change its increasingly dovish stance until after oil and food commodities have moved substantially higher.   These items are viewed as "too volatile" to give an accurate picture of inflation… until US citizens start screaming that they can't afford pump gas and food!

  12. The dovish stance is silly, but it's very good for gold.

  13. Double-click to enlarge this fabulous weekly chart for gold.  My 14,5,5 Stochastics oscillator is oversold and almost sporting a crossover buy signal.

  14. In the summer of 2022, Stochastics also flashed a buy signal.  It failed briefly, before flashing another one that ushered in a massive $400/oz rally for gold!

  15. If this buy signal fails, the $1900 low is a magnificent entry point for gold, silver, and the miners.  Because it's a previous low, it's also ideal for stoploss enthusiasts who can keep a stop at $1890, $1885, or $1880.

  16. If gold instead surges to an all-time high (likely), the next big buy zone for gold market investors would be on a pullback to $1975.

  17. The daily chart shows a big base/reversal pattern in play.  It began forming in May and it's almost certainly a product of both an increasingly dovish Fed and the increasingly massive Chinese citizen floor of demand.

  18. The smart money commercial traders added a lot of short positions at the $1980 resistance zone. 

  19. If most of them are covered off by the end of the Fed meet and announcement, and I think they will be, the "rally time for gold!" cake is likely iced. 

  20. What about the miners?  There's a nice H&S bottom in play.  Even if the pattern fails, basis Edwards/Magee the final low is near.  Silver stocks look ready to soar!

  21. Double-click to enlarge this incredibly positive daily GDX chart.

  22. At the April highs, the technical situation was essentially the opposite of what it is now; weekly chart oscillators were overbought (now they are oversold), and sentiment (basis the BPGDM) was also overbought.  Now it's oversold. 

  23. Rather than cautionary as in April, overbought Stochastics on gold stock daily charts is bullish.

  24. Also in April, the economic news and mood in China was negative, and the outlook for gold demand there was questionable.  Now, a huge Chinese stock market rally looks imminent and the demand for gold is solid.  The bottom line for mine stock investors is this:  Buy this dip and be prepared for what could quickly become… a very golden lunar trip!


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.