The Ultimate Gold Bug's Dream: "The World's Financial Theme Is About To Become The 1970'S On Steroids!" - Stewart Thomson

Syndicated column. Written by Stewart Thomson and published by SilverTrade with permission. The views are the author’s own.

Submitted by Stewart Thomson, Galactic Updates:

Over the past few months, gold has been oozing generally sideways (with a modest downwards bias) against US fiat. The cause of the swoon is weakened demand from central banks and Indian citizens.
In turn, that weakening is related to the Iran war. While it is temporary, investors need to be patient because it will take time for this significant energy supply crisis to end.
The world’s debt problems are getting worse, especially for governments. As the energy crisis subsides those problems will again become the main driver for gold.
US citizens carry less debt than the government, but if stock and real estate markets were to collapse, many people could become unemployed and that would lead to a huge increase in debt… for both government and the citizens.
On that key note,

Basis the Shiller/CAPE inflation-adjusted P/E ratio, the US stock market is more overvalued now than it was at three of the past four major bull cycle peaks.
Ominously, this is occurring with government debt reaching unprecedented levels.
Double-click to enlarge this Nasdaq ETF chart.

Some big-name stocks have rolled over and the whole market looks shaky. Where is the money going?

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The money appears to be going to China, where the CAPE ratio is sub20.
Investors who buy high in hopes of even higher prices have to sell to lock in their profits, or they risk massive drawdowns that they may not be able to handle.
In contrast, if they buy low they don’t have to ever sell. They may or may not build sustained wealth, but they won’t have to experience what could (and likely will in the case of the US market) become decades of sustained losses and immense emotional pain.
In a nutshell, there’s immense value in the Chinese stock market and very little value in the American market.
Excitingly, Chinese citizens have a long history of celebrating good stock market times with purchases of gold. Previously, some of it was bought in the leveraged paper market and then lost in a drawdown. Interestingly, regulators have recently banned a lot of gold market leveraged trades for retail investors, while encouraging purchases of physical metal.
The new regulations will increase the amount of gold that is held in physical form… and kept there.
For a look at the daily gold chart,

Is it a breakout for gold or a bear rectangle? Well, the next short-term move of $200 or so is likely decided by tomorrow’s Fed meet, Thursday’s PCE inflation report, and Friday’s BOJ meet.
What can be said is that the $4100-$3900 was and is a key buy zone, but savvy gold, silver, and mine stock bugs also need to be ready to buy if there’s a disappointing dip that sees gold trade down to another key buy zone at $3500.
The good news is that odds still favor a surge to $4400 and then $5000 rather than that demoralizing drop.
For more insight into the matter,

Double-click to enlarge. On this important weekly chart, key buy zones are highlighted, as is the vibrant action of the 14,5,5 series Stochastics oscillator.
A crossover buy signal of significance appears imminent; note the bullish hook that is occurring in the oversold zone.
Clearly, a daily focus on the big picture is critical for investors as inflation, war, a wildly overvalued US stock market, horrific debt, and empire transition dominate the investing landscape. Thanks!
It’s true that raising rates won’t end the oil shortage in many parts of the world. It would reduce demand (slightly) in regions where there is no shortage.
I’ll dare to suggest that the real reason central banks should now be raising rates aggressively is not to combat the modest inflation faced by most citizens, but instead to end the abhorrent debt obsession of governments.
By refusing to hike now, a major bigger government-oriented inflationary tidal wave will crash into the citizens later… and perhaps not that much later.
The good news for gold bugs of the world is that this tidal wave is likely to be accompanied with crashing US stock and bond markets, a surging Chinese stock market, surging gold and silver bullion, and skyrocketing miners.
The free market is already raising long-term bond rates regardless of what central banks do.

The bottom line is that most governments are now de facto deadbeats that should pay loan sharking rates on their hideous debts.
A bullish coil/wedge is in play and today’s pre-Fed action is completing a small inverse H&S pattern at the base of the coil.

There’s also an interesting bullish divergence between RSI and the GDX price. Another positive divergence features the Chinese stock market (basis FXI ETF) beginning to rally.

The 1970s (on steroids) is likely to become the world’s main financial theme… which of course is… the ultimate gold bug dream!