Chinese economic growth is probably the main driver of both physical gold demand and the global bull market in stocks. 

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I’m invested in China through ETFs, bank stocks, and… gold!

With the possible exception of HSBC, most analysts in the West appear to be underestimating the resilience of a billion Chinese citizens working maniacally in the private sector.

I’ll go even further than HSBC and predict that Chinese GDP growth could re-touch the 7% area if a trade deal is announced.

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The FXI-NYSE Chinese stock market ETF is breaking out of a powerful inverse H&S bottom pattern. The technical action fits with the growing GDP fundamentals, and key Chinese gold jewelry stocks are racing to fresh highs for the year. 

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While gold is doing extremely well so far in the weak demand season, a trade deal and/or a Chinese GDP surge could end this weak season earlier than usual.

Most big bank analysts see gold at $1400 or higher within 12 months. That $1400 price would turn many gold miners into gargantuan cash cows. Mining stock dividends would soar and make global money managers embrace the sector in a much more consistent way than they have in the past.

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If Chinese growth can reach the 7% area, Indian growth should reach 8%. India’s central bank has started its own gold buy program and all the silly government attacks on the Indian gold sector have ended.

Most gold analysts look for signs of a weakening global economy to propel gold higher. In contrast, I look for signs of strength in the private sector and signs of weakness in the US government sector. Both are present now.

The US government is a walking tombstone. Its debt cannot be paid. It’s a gargantuan glutton that is clearly out of control. The government and its central bank recklessly smash savers by demanding ultra-low rates and QE. It does so because its own grotesque appetite for borrowed money is insatiable.

Interestingly, Trump has just nominated gold standard enthusiast Herman Cain as a potential Fed governor. Trump says that Herman “gets it”.  

Does Trump mean Herman understands that only a gold standard can end the insane growth of the US government?

I think so. The current bottom line for gold is that all Chindian growth lights are green and all US government debt lights are red. This is the perfect environment for creating rallies in the gold price that are sustained.

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The price action of the TLT-NYSE bond market ETF supports my theme of strength in global stock markets and gold and weakness in bonds.

Sometimes gold rallies when interest rates decline and sometimes it rallies when they rise. If there’s enough fear in either scenario, gold will rally strongly. 

Gold soared in 2009 after rates were dramatically lowered with QE and fear of system collapse was rampant.

Gold soared in 1979 as rates went ballistic and fear of hyperinflation was rampant.

Libertarians are obviously eager to watch the US government incinerate in a rocketing rates bond market fireball, but I think the coming swoon in bond prices will be more mundane.

Simply put, the US government debt fireball lies ahead, but in the medium-term gold is likely to rally to $1400 mostly because of the fundamentals of strong Chinese growth.

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GDX chart

I’ve been adamant that the weak season sideways action for GDX and associated miners won’t end until there’s a Friday close of $23 or better.

Will this be the week that it happens? Well, it feels imminent and the good news for investors is that the symmetrical triangle now in play for GDX has an upside price target of about $26!