Gold continues to act superbly for eager buyers in this time of seasonal softness. Against a background of static mine supply, Chinese demand is strengthening slightly and Indian demand is moderately soft. 

The price action reflects these key fundamentals perfectly. 

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Amateur investors should focus on $100 per ounce price sales for gold. From the recent $1375 area highs, that makes my $1280 support zone even more important for accumulators of the world’s mightiest metal.

Some investors are concerned that rising oil prices will increase the AISC (all-in sustaining costs) of miners significantly. That was a legitimate concern during the past two decades when deflation and collapsing money velocity ruled the gold stocks roost.

America now looks eerily similar to the late 1960s, when inflation began to emerge. The oil shock of 1973 sent fuel prices skyrocketing, but gold stocks were bought aggressively by investors who were very worried about rampant inflation.

Gold stocks soared as fuel costs soared. That was then, and I believe it is poised to be now.  Here’s why:

Bullion is a major asset class. In terms of dollar volume, more bullion trades daily in London than the entire NYSE daily volume. It’s the fifth most active FOREX contract in the world. Simply put, the market for bullion products is gargantuan.

In contrast, gold stocks are a very small sector of the market.  So, it only takes modest institutional buying to boost prices, and boost them quite significantly.

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This hourly-bars gold chart is technically positive. Some “build-out” of the right shoulder is possible, but that won’t take long.

The next COMEX option expiry day is May 24, and it should be the catalyst that launches the next great rally for the entire precious metals asset class.

In 2014 I predicted that China would lead a “gold bull era” where investors buy exponentially more physical gold with their smart phones. 

Key gold jewellery manufacturers and retailers in China are seeing a significant increase in sales now, and I’ve predicted this is only the very beginning of what will be a glorious multi-decade ramp-up in online demand for gold.

Top technicians at Goldman see the $1275 price zone as the outskirts of a key buying area, but it’s possible that the low for this “price sale” is already in!

The fundamental drivers of American inflation are arguably as strong or even stronger now than they were in 1968.

US demographics bear similarity to that time; in the late 1960s, the baby boomers were young and rebellious. The London Gold Pool was ending. The free-trade for gold didn’t get completely launched until about 1974, but some gold products (like certificates) were free-trading by the late 1960s and gaining popularity.  Most importantly, it was happening as rates and inflation rose.

A lot of analysts draw parallels between the economic policy of the Trump administration and the Reagan administration, and the policy is similar, but the Fed policy and the business cycle are not. 

Both administrations used tax cuts to promote growth, but the Reagan administration had the start of the greatest rate cutting cycle in American history as wind at its back.  It also took office at the end of a major economic downturn.

The Trump administration faces a rate hiking cycle, the late stage of the business cycle, and the end of a twenty year bear market in money velocity. The business upcycle has featured huge stock market buyback programs with only modest expenditure on business expansion. That’s very inflationary.

What’s essentially happening is the US private economy is expanding but overheating, and the US government is pushing rates higher with its huge budget deficit. 

An inflationary genie is poised to leap out of the bottle in a very big way. The US private economy should continue to grow in the 3% range, but inflation will soon emerge. The big loser in this situation is the US government, and rightly so. 

More inflationary tax cuts are almost certainly coming. These cuts are necessary. Even after Trump’s first tax cut, US small business taxes are still about twice as high as supposedly “socialist” Canada’s rate. 

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The US dollar bear market rally against the yen is probably almost over. A last push towards 112 – 115 is possible, but when Powell announces his next rate hike on June 13, it’s likely the end of the rally.

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While GDX appears sleepy, many GDX component stocks are in powerful uptrends now. This often happens ahead of a major advance for indexes and ETFs like GDX. 

Investors should watch the $23.25 price zone for GDX very closely. A two-day close above that line in the sand should ignite a multi-month advance towards my $30-$35 target zone, and probably by year-end. That’s a huge percentage gain for eager accumulators who buy with gusto now!