There has been an uptick in market risk over the past couple of weeks, and that’s being reflected in dollar-yen and dollar-gold.

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dollar versus yen chart

The 109.50 area on this chart is quite important for gold investors. If the dollar falls under that price zone, gold is likely to surge to above $1300.

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Gold looks technically solid here in the middle of the soft demand season. There’s a bull wedge in play, a Stochastics buy signal, and a small double bottom at about $1268.

The US stock market is entering its soft season (May-October) but gold’s strong season really doesn’t get underway until August. Investors should exercise patience but there’s little cause for gold market concern.

Gold stocks were slightly higher yesterday with the Dow down about 500 points on negative trade negotiation news. That’s a positive action for these stocks!

The US and Chinese governments are close to announcing a trade deal, but it comes late in the US business cycle and at the start of the stock market soft season.

A trade deal would likely benefit the Chinese stock market. That’s good news for gold and gold stocks. Chinese investors are in a “so-so” mood right now. A trade deal would put them in a great mood, and when they are in a great mood they celebrate by buying lots of gold.

US growth stocks would likely benefit as well. In the big picture, the Chinese stock market gets badly hurt by tariffs and the US stock market gets badly hurt by QT and rate hikes.

I’m adamant that even the most diehard gold bug should have some capital in the US stock market, bonds, and real estate. Even if it’s just 10% of a gold bug’s portfolio, it’s important for all investors to hedge their bets.

For mainstream investors, gold is the hedge. For gold investors, stock markets, government bonds, and real estate are the hedge.

Investors who put all their eggs in one asset class tend to be driven by emotion. If the stock market soars, they curse gold and chase the stock market. If the stock market falls and gold soars, they sell their stocks and buy gold. That’s not going to build sustained wealth in any asset class. It’s a destructive action.

Whether there is a trade deal or not, gold-oriented China is going to keep growing at twice the GDP growth rate of America for a long time, and gold-obsessed India could grow at three times the US growth rate for even longer.

What this means for gold is an evolution of the asset class, from a simple US-based fear trade hedge to a more sophisticated globally-endorsed asset that rises against all fiat in good times and bad, and swoons rather than crashes during setbacks. 

The evolution is real, but are investors aware?

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TLT-NYSE bond ETF chart

It has my Graceland Updates proprietary buy and sell signals annotated on the chart.

Gold is the ultimate risk-off asset class, but T-bonds are a very good indicator of stock market risk. I have a buy signal in play for bonds as the stock market weak season begins.

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Renowned economist Joe Stiglitz notes that while US corporate capital expenditures did rise substantially after the Trump tax cuts, stock market buybacks were about 20% higher than those expenditures. 

Stiglitz appears overly-critical of Trump, but he is correct that the huge buybacks versus expenditures spread is concerning.

The US economy is reasonably solid, but a lot of the stock market gains are more related to these buybacks, manipulated interest rates, and QE rather than to corporate earnings and overall economic growth. 

In a nutshell, there is risk in the market that needs to be respected, especially as the stock market’s soft season begins.

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GDX daily chart

There’s a fresh bear flag in play, but there’s also a large bull wedge pattern appearing.

With Stochastics the most oversold since September, any pullback this week is likely to be contained by the bull wedge formation GDX could be making a seasonal low, here in the $19-$20 price zone.

The bottom line for gold, silver, and the miners is that the market has already evolved to the point that soft season price declines are of no concern. My suggestion is to focus on short term trading in the soft demand season and core position capital gain in the strong season!