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Stewart Thomson

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…

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Gold Stocks Breakout Inches Closer

Graceland Updates 4am-7am
July 10, 2012

  1. Ethanol and many biodegradable plastics are made from corn. Some experts estimate that corn is present in more than half of all grocery products.

  2. Please click here now. You are looking at the price action of corn. Rising food prices translate into real inflation, and real inflation leads to higher gold prices.

  3. It's possible that a full flag pattern could form on this corn chart right now. The upside breakout has turned the highs around $6.75 into substantial price support.

  4. Please click here now. Corn blasted out of its super-wedge pattern, and I think it's reasonable to suggest that gold & silver could make a similar move very soon.

  5. Some soybean contracts made all-time highs yesterday. Please click here now. Two bullish breakouts have occurred. The first was a move over massive resistance at $14, and the second was the rise above the blue supply line, at about $15.25.

  6. The target of the head & shoulders pattern is about $17 a bushel.The United States is a major exporter of soybeans to China, so you can see that Chinese consumers may be about to get hit with substantially higher food prices.

  7. The vertical movement in soybean prices is another key factor that could help launch the gold price higher.

  8. Please click here now. Technically, sugar is acting very well at this point in time. Sugar has risen to HSR (horizontal support & resistance) at $.2225, which is only about 1/3 of the levels that it reached back in the 1970s. As a long term core holding, and as a gold price driver, sugar is firing on all cylinders.

  9. A lot of American corn is used to produce ethanol, and Brazilian sugar could be required as a substitute if the drought doesn't end.

  10. South America has also experienced some drought conditions, so sugar could be more of a "price powderkeg" than most investors realize.

  11. Along with food, the energy markets are key movers of the gold price. The oil charts are particularly interesting. Please click here now. In the short term, oil has a tiny head & shoulders top on it.

  12. Ironically, that top pattern could help create a bigger head & shoulders bottom pattern. To view a longer term chart, please click here now. Oil appears set to begin rising back towards $100.

  13. The gold community's greatest love is gold stocks. I'm a big proponent of the view that gold will ultimately be the tool that ends the global financial crisis. Central bank buy programs should not only raise the price of gold, but maintain it close to the highest price attained in this bull market.

  14. In the 1970s, gold crashed at the end of that bull market. In the 1930s, gold was revalued and traded sideways for decades. I believe the current bull market will end more like the 1930s bull market ended, with gold locked in a tight trading band.

  15. When the bullion bull market ended in 1979-1980, gold stocks continued to rise substantially higher in price.

  16. As this bullion bull market ends, if gold trades sideways like it did in the 1930s, your gold stocks could rise a lot higher, and possibly pay enormous dividends for quite a long time.

  17. Please click here now. You are looking at the daily chart for GDX, and you can see it is trading roughly between HSR that is near $39 and $49.

  18. Short term traders should be buyers near $39 and sellers near $49, but I think that more risk capital should be allocated to a buy & hold strategy.

  19. If gold bullion makes a move like corn and soybeans just did, GDX and your individual resource stock holdings could get "slingshot" to prices far above where they are now.

  20. I want to see the gold community 100% prepared to buy and endure all worst-case scenarios, because the potential rewards being offered on the upside are so great.

  21. A situation where GDX breaks the lows near $39 could create some panic selling, but my view is that most sellers have already sold out of the market.

  22. It is much more likely that a move back down towards the lows would simply create a solid double bottom pattern, with powerful upside implications. Remember that there are likely a large number of stop loss orders near $1520 in the gold market. A shocking fall to that level is more likely to be a fake-out than the beginning of a new decline.

  23. Given the powerful movement in the price of key food crops, rather than beginning a new leg down, it's more likely that gold begins to rise violently to the upside.

  24. Please click here now. That's another look at the trading range for GDX, with emphasis on the volume. GDX has meandered sideways, and volume has tapered off nicely while that has happened. Technically, that's very bullish. The weight of the evidence suggests that GDX will soon launch a successful attack on the $49 level!

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