Gold continues to flow from the West to the East at a pretty solid pace. 

To view the latest evidence of this fact...

The SPDR fund (GLD-NYSE) holdings have oozed down to just 809 tonnes… and done so while the price of gold has strengthened!

Many Western countries are net exporters of gold in quantities that exceed their total mine production.

Double-click to enlarge this gold chart. 

Gold’s latest rally began from the July 10 area lows of about $1205. The SPDR fund holdings were about 839 tonnes at that time. Gold’s $50 rally over the past two weeks has occurred while the SPDR fund holdings have fallen noticeably.  

The powerful commercial traders that operate on the COMEX follow the physical market meticulously. The SPDR fund is the Western fear trade’s physical market “crown jewel.” Flows into it influenced the gold price substantially during the 2009 - 2011 time frame. Quantitative easing was the fundamental theme in play.   

The fact that gold can rally now while SPDR fund holdings tumble suggests that Chindian love trade buying is overwhelming Western fear trade selling in the price discovery process.

From both a fundamental and technical perspective, this rally is now due for a pause. Technically, an inverse H&S bottom pattern appears to be forming. A pause now in the neckline area at about $1260 would allow the right shoulder of this pattern to form.

Fundamentally, the next Fed meeting is tomorrow and gold tends to trade softly around Fed events. I’ve recommended light profit booking into this rally and I continue to do so.

Double-click to enlarge this important US dollar versus Japanese yen chart.

The dollar has fallen against the yen and fallen against gold since July 10. In the short term, a pause for gold and a rally for the dollar seems imminent.

In the bigger picture, the dollar could begin a “meltdown” phase as gold bursts above the neckline in the $1260 area. A move above $1260 opens the door to a surge towards $1300, which is a bigger profit booking area for gold investors.

Double-click to enlarge.  

GDX had a particularly nasty day yesterday. It broke down from a negative wedge pattern on heavy volume. 

To understand what happened.

Acacia is majority owned by Barrick, and Barrick is a major GDX component stock.

While Acacia could theoretically recover from this nightmare, it looks hopeless. Even if they do convince the Tanzanian government to reduce the tax bill, that could take years. The sand in Acacia’s hourglass is running out fast.

Gold stocks are likely to stumble more than gold in the short term because of this Acacia quagmire. There is some very good “big picture” news though. 

I’ve been a little disappointed with the slow pace of the Trump administration in making its campaign promises happen. 

Having said that, Trump’s appointment of Randy Quarles to the Fed may be a much more positive event than most analysts realize.  It could be his most important action since taking office. 

That’s because it may represent the beginning of the end for the bank bonus system that has benefitted Wall Street at the expense of Main Street.

The bottom line is that Dodd-Frank regulation has combined with low interest rates to create a small business loans quagmire. Thousands of small American banks aren’t engaged in trading with other people’s money like the big banks are. They get all the regulatory stick, and none of the trading with other people’s money carrot!

Quarles could make significant progress in ending this hideous quagmire by reducing regulations. That opens the door to ending the 22 year down cycle in money velocity. 

The arrival of Quarles at the Fed with a deregulatory mandate is not a “free gold stocks parabola now” buy signal, but it is a key step in an important process that can reward patient gold stock investors. It’s very difficult for gold stocks to consistently outperform gold bullion while US money velocity is in a bear cycle. 

I’ve dubbed Randy Quarles “Mr. America”. That’s because he can be the catalyst that ends the bear cycle in bank loans, money velocity, and gold stocks versus gold. A few more rate hikes from Janet combined with real deregulation of the US banking system can produce a powerful bull cycle in bank loans to Main Street.

It would come at the expense of Wall Street. I’ve predicted that if Quarles is successful, Main Street can grow America’s GDP at a 5% rate, while the US stock market goes into a stagflationary gulag. The entire world gold community should cheer that Quarles makes the US banking system, Main Street, and gold stocks… great!