Gold’s recent rally from the $1268 area lows has stalled, and the reasons for that are both fundamental and technical.

Double-click to enlarge this daily gold chart. 

Gold fell about $100 from the $1362 area highs as seasonally soft Chinese buying was accompanied by a collapse in Indian demand.

That collapse was caused by the “Know Your Client” rule imposed by the government on gold jewelry purchases.

The price decline was exacerbated by the “Golden Week” holiday in China. Also, the Chinese government chopped commercial bank reserve requirements. That created a huge “risk-on” mentality in global stock markets during what is normally a weak period.

As the Golden Week holiday ended, the US jobs report was released, and the Indian government killed the “Know Your Client” rule. 

Gold surged about $40 higher from the $1268 area Fibonacci line to the neckline of the head and shoulders top pattern.

Unfortunately, there isn’t enough demand to sustain the rally, and the short-term target of $1215 is still a probable one.

Put options are a nervous gold bug’s best friend, as I’ve repeatedly noted since gold traded above $1330.

Double-click to enlarge this long term gold chart.

In the big technical picture, the short term weakness is healthy.

There are several huge bullish price patterns in play on the weekly gold price charts, including the bull wedge pattern I show here. A pullback to the trend line is normal after a major breakout.

That pullback is in play now, and it is targeted to end at about $1215, which is also the target of the head and shoulders top pattern.

Double-click to enlarge.  

That’s another look at the weekly chart.  

In addition to the huge bull wedge, there’s an enormous inverse head and shoulders bottom pattern in play.

The target of that pattern is at least $1650. 

I consider Jeff Christian to be the Western world’s top gold market fundamentalist.

He sees the growing institutional investor loss of respect for the Fed as a theme that will continue. That’s good news for gold.

Jeff and I differ in our short term outlook (I see $1215 as probable and he sees $1340+), but we both are focused on a decent acceleration in upside price action to occur over the next 12 – 18 months.

That acceleration should begin as gold moves above $1392. January – February 2018 (Chinese New Year gold buy season) is the most likely time frame for that move above $1392 to happen.

Double-click to enlarge this dollar versus yen chart.

The dollar looks like a train wreck in slow motion. Clearly, the Fed’s rate hikes have been dollar-negative. To make America “great” again, a modern version of the homestead program would be required.

Going forward, America would need at least a billion new immigrants with an incredible work ethic to stop China and India from economically leaving it in the dust. That’s not happening now, and it’s not going to happen. The dollar will continue to decline, albeit very slowly. 

More rate hikes will only cause problems for a debt-soaked government that can barely finance itself now. That’s dollar-negative and gold-positive.

Double-click to enlarge this GDX weekly chart. 

I’ve suggested that nervous investors can use put options to manage that nervousness. 

Those who are flush with cash or new to the gold stocks asset class should have an aggressive buy program in the $23 - $18 price area, in preparation for a sustained uptrend to my $31 and $37 target zones. Keep an eye on Chinese New Year as the time frame to nail the first target at $31!