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Stewart Thomson

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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Metal Surfers and Fed Tidal Wave

Graceland Updates 4am-7am
Feb 12, 2013

  1. President Obama gives his State Of The Fiat Union speech tonight. While I hope he takes the opportunity to recommend that America's citizens purchase a bit of gold, somehow I don't think that will be happening.

  2. Please click here now. You are looking at the Bank of Japan's balance sheet. More and more central banks are jumping onto the QE bandwagon, which is highly inflationary.

  3. One member of the Japanese government is " demanding" that the Nikkei (Japanese equivalent of the Dow) rise to 13,000 within two months. Please click here now. That's the monthly chart of the Nikkei.

  4. While it's broken out of a drifting rectangle (highlighted in blue), there is enormous overhead resistance in the 14,000 area. It's not quite as simple to " print a stock market higher" as the Japanese government would have you believe.

  5. Too much money printing can cause a currency panic. That would be followed by institutions pulling out of the country altogether.

  6. The reason I want own to gold is because governments are attempting to print their stock markets higher. Gold and resource stocks will drastically outperform the global stock market indexes like the Dow and the Nikkei.

  7. The period of drastic outperformance should have come earlier, but it didn't, due to the implosion of Lehman. Gold and gold stocks were beginning to go parabolic in 2008.

  8. While the Lehman event delayed the parabolic move, it also made the crisis bigger, and probably greatly increased the size of the ultimate move.

  9. Please click here now. The HUI index of gold stocks peaked against gold in 2003. Ten years later, gold is much higher, and the stocks are still languishing, but so is the Nikkei.

  10. Note the tightening of the Keltner bands on that HUI:gold ratio chart. The tightening indicates that gold stocks should be accumulated with some profits from gold bullion holdings.

  11. Governments are determined to reflate. The problem is that they are launching the reflationary actions from a platform of enormous debt, rather than from the " floor" of a 1929-style collapse.

  12. The refusal to cut the size of the debt opens the door to cost push inflation (CPI). CPI opens the door to soaring gold stocks. It will take several years for QE to create CPI, although it could happen more quickly in Japan.

  13. In America, the Fed believes in an approximate 8 year business cycle. The last cycle ended in 2007, and the next one will probably end in 2015. As growth fades and CPI grows, your gold stocks could rise much more dramatically than they did during the 1970s and the 1930s.

  14. I realize that a lot of investors in the gold community are disappointed with yesterday's price action, but gold moves from periods of being overbought to oversold quite regularly. Hoping for CPI to envelop your gold stocks now is not realistic.

  15. Please click here now. You are looking at the daily chart for gold. Note the action of the 14,7,7 Stochastics oscillator that I use. Momentum-based rallies tend to occur when the oscillator flashes a buy signal in the 40-60 zone, but such signals are quite unreliable.

  16. While we all hope for a momentum-based rally at pretty much all points of time, most rallies tend to occur when a crossover buy signal occurs after the lead red line touches 20 on that daily chart.

  17. The bottom line on that front is "close, but no cigar!". Having said that, gold is much closer to being oversold than overbought. Cheer for momentum-based buy signals, but buy only value-based ones, with the Stochastics in the 20 zone!

  18. Please click here now. That's the most-recently updated chart of the US Central Bank's balance sheet. It's surging. Maybe President Obama ordered the ESF (exchange stabilization fund) to short gold, so that his fiat speech goes off without a hitch. Maybe gold just wasn't quite oversold enough at $1680, to start a trending move higher. Those are minor issues.

  19. The big issue for gold investors is the Fed's balance sheet. It's growing again. If you want to essentially take the other side of the overall central bank position on gold, you may not fare well.

  20. Please click here now. You are looking at the daily chart of the US T-bond. A bullish wedge is beginning to form. Gold and bonds will continue to move together, until cost push inflation is widely recognized.

  21. Bond prices have stopped declining, and the 14,7,7 Stochastics oscillator is flashing a crossover buy signal, after going under 20. That's good news for gold!

  22. Silver fans should probably click here now. That's the hourly bars chart. We all hoped silver would break out upside, but it didn't happen. The target is about $30.

  23. Focus on what the silver asset is. It's a great asset. Think of it like the ocean; the tide goes in and out, but the ocean is still there. Sometimes silver is overbought and sometimes it is oversold. Dreaming that the ocean is going to jump up and walk on the land is not realistic. Likewise, dreaming of silver at a thousand dollars an ounce, while selling it on a $1 dip in price in a panic, is equally unrealistic.

  24. Please click here now. That's the daily chart for silver. On the daily chart, bonds are the most oversold, and gold is close behind. Don't worry, silver is in very good hands, and soon the "wild one" will be oversold too, and ready to surf the rising Fed balance sheet, to higher prices!

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