Gold Stocks: Is It Time To Buy?

Has gold entered a key buy zone for investors?

Gold has indeed entered a buy zone, but to call it “key” is a bit of an exaggeration.

The $4200-$3941 area is a buy zone… for modest-size buying of gold, silver, and mining stocks.

What caused the drop (which is perhaps better labeled a price sale)?

Well, China’s “Golden Week” holiday begins October 1. Ironically, it’s a week when the nation’s gold markets and shops are closed.

Some of yesterday’s price drop can probably be attributed to selling ahead of that holiday, some to US-Iran tensions, and of course some to the rise in interest rates.

On the weekly chart, the key buy zones are most evident. 

The $4200 area isn’t as important as the lows around $3941. In a nutshell, some buying can be done here, but the $4000-$3900 is a more enticing area.

Next,

While interest rates are probably due for a short-term dip, the inverse H&S action on this long-term chart suggests citizens of the world need to be prepared for a surge to 10% and higher.

 Gold is negatively affected by “real rates”, but that mantra falls apart if rates rise enough to crush a government’s ability to pay the interest on its debts without printing enormous amounts of fiat.

 I’ll dare to suggest that 7% is the number where the gold-rates mantra dies and a new debt-rates mantra comes to life.

 Some pundits are currently suggesting that AI brings an existential threat to humanity. That’s theoretically possible, but what’s much clearer is that 7%-10% rates are an existential threat to most governments of the world. 

The ADL (advance/decline line) for the Dow (DIA) is looking shaky.

 So far, the US “Teflon Stock Market Don” has endured the Ukraine war, a tidal wave of tariff taxes, the Iran war… and rising rates.

 The big caveat is that 5% rates are relatively low. A rise from 5% to 8% is a lot more damaging to the stock market than a rise from 0% to 5%... and it’s still very early in the 2020-2060 US inflation cycle.  

 After rates slowly rise to 7%-8% and the stock market tumbles, it will be very difficult for the market to recover if rates continue to rise.

 When a person is a young, social media and appearances are important. As they mature, those things become less important or totally irrelevant and... 

It’s the same with the rates narrative for gold; when rates are low but rising, the focus is on interest paid on fiat versus none for gold. When rates rise enough to potentially bankrupt the government, the focus moves away from interest payments and towards trust… towards the currency that can be trusted the most, which of course is supreme money gold.

 Miners?

Fibonacci enthusiasts should take note of the 50% retracement of the summer rally.

Given that gold is in the $4200-$3941 buy zone (albeit at the upper end of it), gold stock investors should buy some positions while keeping lots of dry fiat powder to manage potential volatility around Wednesday’s PCE inflation and Friday’s job reports.

 For a truly enticing look at the GDXJ chart,

It’s unknown if this fabulous inverse H&S bull continuation pattern plays out as indicated…

But if it does, GDXJ is going back to its $157 area highs, and to as high as $185!

An equally spectacular inverse H&S pattern is in play for GDX and for numerous senior miners. The price target for GDX is $140. The bottom line: it’s not a time to “back up the truck”, but it’s definitely a time to buy!