Gold Versus The Yen

 

Stewart Thomson 

 

  1. For gold to perform well against the US dollar, it needs to perform well against the Japanese yen.
  2. Please click here now. Double-click to enlarge.
  3. Since 2011 gold has traded sideways against the yen.  Since 2013 it has been coiling in a very positive symmetrical triangle pattern.
  4. An upside breakout would usher in a major move higher for gold against both the yen and the dollar.
  5. Since 2013, the Indian market has been dealing with major duty, import rule, and hallmarking issues.  The process has weighed on demand since 2012.
  6. India’s gold market has undergone an enormous restructuring in response to these issues.  The good news is that the restructuring is essentially complete now.
  7. That paves the way for higher imports on a much more consistent basis.
  8. China has made significant progress in tying gold price discovery more to physical demand versus supply.
  9. Trump has also had major success in pushing the dollar lower against most of the world’s currencies.
  10. These are not just one-time events.  Events like tension in Korea can move gold $20 - $50 in a short period of time.  A $100 - $200 move is possible if the tension intensifies (which it hasn’t).
  11. Unfortunately, these gains are no more sustainable than the gains from the 1980 Russian invasion of Afghanistan were sustainable.
  12. When the tension subsides, all the gains from these one-time events tends to be lost. 
  13. To move $1000 higher or more, gold needs to see a quasi-permanent ramp-up in the physical market demand against static or limited supply growth, and that’s happening right here, right now.
  14. Trump’s actions on the dollar are a long-term process.  He is now beginning a trade war with China.  From a gold price discovery perspective, this is vastly more important than tension involving Korea.
  15. Please click here now. Double-click to enlarge this gold chart.
  16. Gold looks fabulous.  After rallying about $90, gold is consolidating its gains.  A new minor support zone at $1260 - $1280 is in play.Both traders and accumulators can be buyers in this support zone, in anticipation of a sustained rise above $1300.
  17. Please click here now. Double-click to enlarge this daily chart of the Dow.  If the US stock market suffers a major crash in September or October, there tend to be “cracks in the dike” in August.
  18. That’s what’s happening now.  The uptrend is still intact, but getting tested.  The next technical event to watch for is an RSI non-confirmation.  This happens when the Dow makes a new high, but the RSI oscillator (shown at the top of the chart) does not.
  19. Investors can lighten up in August and essentially take a two month stock market holiday.  That’s what I do.  It reduces emotional stress. 
  20. My focus is more on the Asian stock markets than America, and I’ve sold about 30% of my positions into this price strength.  If there is a crash, investors can buy aggressively, with a focus on banks and Asian markets.
  21. Asian consumers carry debt that is similar to US citizen debt, but they have a lot of savings and strong saving rates as a percentage of income.  US citizens have almost no savings and abysmal saving rates. 
  22. Asian markets will rebound from any crash with the resiliency shown by US markets during the late 1800s.  In contrast, US markets are in danger of descending into a stagflationary gulag if they crash.  I’m a buyer of US markets if they crash, but not with much risk capital compared to my Asian market allocation.
  23. Please click here now.  A number of influential money managers are following GDX right now, including Jeff Gundlach.  The triangle formation they are following is important, but what is more exciting is the bullish volume action.
  24. Volume is rising on rallies within the triangle, and ebbing on declines.  That’s very positive.  Bullion and mining stock investors should be very comfortable right now.  Technical breakouts appear imminent and fundamentals are strong!

Thanks! 

Cheers

St

 

Stewart Thomson 

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