By Stewart Thomson
1. Several weeks ago, I surprised most investors by issuing my “Book Profits Now!” call for the precious metals asset class.
2. When I did so, head and shoulders top formations immediately formed on gold and GDX, and prices have swooned.
3. Rumours of a sudden drop in Indian dealer demand appeared to become a concern for commercial traders on the COMEX.
4. India’s monsoon season has turned out to be a bit of a “bust”, with both flooding and drought. Farmers buy gold with a portion of their crop profits. With only another week or two left in the monsoon season, crop sales may not be very good.
5. Of further concern to me was the fact that the demand drop was occurring as gold arrived at the $1352 resistance zone. That resistance was created by Modi’s cash call-in that took place in November of 2016.
6. The upcoming Fed meeting will probably mark the end of the decline related to those concerns, but there could be additional weakness until the next US jobs report is released.
7. Double-click to enlarge.
8. For investors, this gold chart tells the entire tactical story. The $1270 - $1260 area is the target of the H&S top pattern.
9. Investors should use a two-pronged strategy to profit from the coming rally that should take gold back to the “Call-In Day” resistance around $1352.
10. I’ve outlined the $1315 - $1295 price area as the first key buy zone. Eager accumulators can buy right now.
11. Janet Yellen’s handling of the imminent launch of quantitative tightening (QT) at this Fed meeting is critical.
12. It will almost certainly determine whether gold bounces from the $1315 - $1295 buy zone or first proceeds down to the H&S target zone at $1260 -$1270.
13. If gold moves to that lower zone, investors need to consider taking more aggressive buy-side action.
14. That’s my personal strategy as well as my recommended one for gold bugs around the world.
15. Double-click to enlarge this GDX chart.
16. The technical picture for GDX is very similar to gold. Note the small but positive wedge pattern. I’ve highlighted it with thick black trend lines.
17. While the target of the H&S top pattern is about $22.50 (similar to the $1260 - $1270 target for gold), the wedge formation could send GDX and most gold stocks higher from current price levels.
18. Double-click to enlarge this US dollar versus Japanese yen chart. My important 14,7,7 series Stochastics oscillator is now overbought, and that’s happening just ahead of the Fed meeting.
19. Heavyweight analysts at Japanese bank Nomura are predicting a collapse in the dollar down to the 105 – 100 target zone by the end of the year.
20. That’s also been my target zone for quite awhile, and it’s because the dollar is trading in a rectangle between 108 and 114.
21. The technical odds of a breakdown to 100 -105 are about 67%. Also, rallies tend to be week when oscillators become overbought quickly, and that’s what’s happening now.
22. This chart tells the entire story for the precious metals asset class. It’s dramatically under owned, and there’s a beautiful double bottom pattern in play.
23. Gold and associated assets are clearly poised for an enormous increase in institutional ownership. I call it “The Golden Wave”. This buying is not event-based. It’s based on portfolio allocation to gold as an asset class, and that means the buying will be sustained.
24. Gold bugs around the world can use my key prices zones of $1315 - $1295 and $1260 - $1270 now to get tactically positioned in key gold stocks to surf the golden institutional wave!