The US dollar is coming under severe pressure against the Japanese yen this morning. That’s good news for gold.

To view what is essentially a financial train wreck.

Double-click to enlarge this daily chart of the dollar versus the yen.

The dollar is falling towards its Brexit event low in the 99 area, and that has gold poised to stage a nice upside breakout.

Double-click to enlarge this daily gold chart.  

Gold has essentially traded sideways against the dollar since the Brexit event in a symmetrical triangle pattern. That triangle can serve as an upside Launchpad that pushes gold to $1392, and higher!

I realize that many gold investors are somewhat shocked that gold has not had a serious sell-off in 2016, but that’s because the dollar has not been able to mount a serious rally against the yen.

Double-click to enlarge this daily silver chart.

Like gold, silver looks strong against the dollar, and is consolidating in a rectangular price pattern.

An upside breakout for both gold and silver looks imminent. It may not occur until Janet Yellen makes her speech in Jackson Hole later this month, but if the dollar collapses further against the yen, the breakout is likely to happen very quickly!

Double-click to enlarge this GDX daily chart.

Gold stocks are in a fabulous uptrend channel. Note the inverse H&S bull continuation pattern now in play. A fresh rally towards $37 looks like it will be the next significant price movement for GDX.

There is not much retail participation in Western stock markets, or in gold stocks. I believe that’s because most investors have suffered through what is really a 15 to 20 year rolling super crisis. 

Many citizens are working from paycheck to paycheck, and have multiple part-time jobs. They don’t have much capital for investing. This is a different situation from past markets where analysts used the arrival of the public to signal a “top phase” for a market.

Now, the average Western citizen can’t invest money in the market even if they feel greedy. The capital simply doesn’t exist. Markets are dominated by institutional money managers, pension funds, central banks, and governments.

For gold to have a major sell-off against the dollar, a fundamental catalyst is required that will cause institutional money managers to lighten up on their holdings.

Double-click to enlarge this important gold versus T-bonds quarterly bars chart.

A rise in real interest rates can cause money managers to book profits in the gold market. 

Note the 8.70 area on that chart.

Double-click to enlarge this GDX monthly bars chart.

There is significant correlation between the 8.70 resistance area on the gold-bond chart and the $37 - $38 resistance area on the GDX chart. That is likely where institutional money managers will book some profits on their gold stock positions.

For now, the upside fun appears to be alive and well, and institutions are strong buyers of most minor sell-offs. I think amateur gold investors need to have a similar mindset.

 Double-click to enlarge this daily oil chart. 

Between now and the end of the year there are a number of events that could stop any significant sell-off in gold against the dollar from happening. A major oil market rally is one of them, and I’m predicting it happens. 

Oil is also the largest component of most commodity indexes. Janet Yellen watches oil carefully, and she has predicted that low oil prices are temporary. Amateur investors should not bet against her. It’s hard to know how Janet would respond to a major oil price rally that raised the inflation rate significantly, but I’ll suggest that whatever she did, it would be good news for gold.  Here’s why:

If she hiked rates, that could cause the fragile US stock market to crash, as it did when she hiked in December of 2015. The dollar crashed against the safe haven yen and gold then, and I would expect the same thing to happen again. 

If Janet lets oil run higher without raising rates, money managers could go on a gold stock buying rampage, and the US stock market is likely to gyrate sideways in stagflationary mode, as it did in the 1970s.

There’s been a subtle but substantial rise in the slope of M2 money supply growth recently, and a stunning jump in bank credit in July.

Bank loan profits, money velocity, and gold stocks versus gold have all been in multi-decade bear cycles, but the winds of inflation are beginning to blow, and gold stocks are the biggest canary in the inflationary coal mine!