Dr. Bernanke's Golden Conundrum

 

By Stewart Thomson

 

July 17, 2012

 

  1. The gold market feels like the Indy 500 track on race day.  All the cars of the precious metals sector are revving their engines on the start line.        
  2. The junior gold stock sector seems to be revving its engine the loudest of all.  To get a visual picture of why I hear that sound, please click here now.
  3. I’ve compared GDXJ to CDNX, and you can see that a head & shoulders bottom pattern has formed, suggesting that junior gold stocks are poised to significantly outperform the general junior resource sector.
  4. Both the GDXJ daily chart and the 30 minute chart have very bullish patterns in play.  Please click here now.  Indicators like MACD are moving higher and selling has dried up.
  5. When few sellers remain in an oversold market, strongly bullish news can send the price higher surprisingly quickly.
  6. Please click here now.  This 30 minute chart showcases an island bottom.  GDXJ is currently “chewing” at resistance in the $19 area.
  7. I expect GDXJ will burst through that resistance and charge higher, but it’s important to remember that charts show investors a picture of what is probable, not what is guaranteed.
  8. The most probable scenario indicated is that GDXJ makes its way to the dotted black line I highlighted on the daily chart at $27.16, but Ben Bernanke could throw a monkey wrench into our victory dance. 
  9. Dr. Bernanke is scheduled to speak publicly today and tomorrow.  There’s no question that the “recovery” has lost steam, and it would seem logical that anything he says should be supportive for gold.
  10. Unfortunately, some money managers believe that Dr. Bernanke is concerned that not enough effort has been made on the “austerity front” by congress, and he is withholding further QE until a bigger crisis develops.
  11. I don’t think he would do very well in a battle against the US Treasury.  The decision to devalue the US dollar is a decision that can only be made by the Treasury. 
  12. If Dr. Bernanke gets overly forceful with his austerity ideas, the current administration could order him to focus on diluting the value of the dollar, so they can maintain their spending levels.
  13. If a monkey wrench does arrive on the GDXJ scene, and the price drops below the lows at $17.37, it is critical that rather than panicking, you are able to buy that decline.
  14. Please click here now.  You are looking at the daily gold chart.  A small but bearish head & shoulders continuation top pattern has appeared.  
  15. For a second interpretation of the current trading range, please click here now.  Symmetrical triangles can be reversal patterns, but usually they consolidate an existing trend.
  16. These gold charts suggest that investors in the gold community need to be on their toes, because the jury is still out in regards to whether gold has bottomed or not.
  17. One concern of institutional money managers is that in the short term, weakness in the stock market could affect gold.  
  18. Please click here now.  That’s a 60 minute chart of the Dow, and the bullish head & shoulders pattern suggests that traders are anticipating some good news from Dr. Bernanke.
  19. Gold is view more as a “risk on” asset right now, so any events or news that is positive for the Dow is also going to be generally positive for gold.
  20. If Dr. Bernanke does say things today that are negative for the stock market and negative for gold, I think he would make President Obama and Tim Geithner quite angry.  
  21. Any “Bernanke Sell-off” in the risk-on markets is likely to result in President Obama reading him the riot act.  I think the entire Fed would quickly reverse course and begin to make a lot of statements that are positive for both the Dow and gold.
  22. Whether there is one more small sell-off in the gold market or we have completely bottomed is not really very important, because of the enormous upside potential for the gold price.
  23. Rising commodity prices have not gone unnoticed by the Fed.  Please click here now.  The CRB is a general commodity price index, and it has just pushed above key resistance at about 293.
  24. Ben Bernanke knows that the economy is slowing down while commodity prices are rising.   That’s not a good situation and it puts him in a position of being between a rock and a hard place.   As US elections approach, I believe this conundrum must be resolved in favour of monetary easing, and therefore in gold’s favour too, or Ben Bernanke risks being the recipient of President Obama’s wrath!

 

Stewart Thomson

Graceland Updates

 

 

www.gracelandupdates.com

Email: stewart@gracelandupdates.com

 

 

Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada

 

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

 

 

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