Gold Pulls Back Toward $4,300-$4,200 Buy Zone, Stewart Thomson Says

Stewart Thomson

Another traditional US jobs report week is underway, with gold soft on “Tombstone Tuesday” and moving toward what Stewart Thomson describes as a key buy zone for precious metal investors.

After surging almost 20% in a month and breaking out of the corrective channel marked by dotted lines on the daily chart, gold is now staging what Thomson calls a classic pullback toward the breakout point. He says the $4,300-$4,200 zone is the target.

That backdrop matters because the move comes as markets continue to balance inflation concerns, rate expectations and a rally in commodities that are often discussed together. Thomson’s point is that gold’s latest retreat is happening after a sharp run-up, not after a change in the broader trend he sees developing across metals and energy.

As gold corrects, oil is surging, with Thomson pointing to the highs in the $110-$119 area as the next target. Mainstream media often highlights what it says is a key relationship among oil, interest rates, and gold. In that narrative, gold pays no interest, and a higher oil price can lead to Federal Reserve rate hikes that are negative for gold.

Thomson argues that the current US interest-rate backdrop is very different from the 1970s. He notes that in the 1970s, the Fed was able to lift rates to around 15% to defeat inflation while the government could still finance its debts. Today, he says, even an 8%-10% interest rate could push the government into full default.

He adds that the country’s leaders are ignoring that risk, as are many gold market commentators. His view is that when interest-rate hikes go from rhetoric to action, “Queen Gold” will force a fiat-focused government off its debt cliff. He says the Fed can afford to “talk hawk” and do little with rates because inflation, based on the CPI, PPI and PCE indexes, is only 3%-4%.

If oil rises not only to the $110-$119 range but eventually to his longer-term targets of $200 and $300, Thomson says US inflation would surge and the Fed would have no choice but to raise rates into the 8%-10% danger zone and beyond. He says the government would then have to choose between massive spending cuts and printing money, and argues that history shows governments facing default and bankruptcy usually turn to aggressive fiat currency debasement.

Thomson says a large inverse head-and-shoulders pattern is forming on the daily silver chart, with the current pullback creating the right shoulder. He says that pattern is in sync with gold’s price action.

He also points to agricultural commodities, saying they, like gold and silver, do not pay interest and are beginning to surge alongside oil. He cites the PDBA agricultural ETF chart and the sugar market ETF, CANE, where he says a large inverse head-and-shoulders pattern is in play and the right shoulder is a bull wedge.

The bottom line, according to Thomson, is that massive inflation is coming, along with much higher rates that could threaten the US government’s existence. He says the question is whether investors are prepared.

Thomson says investors need to keep a daily focus on the broader picture as inflation, tariffs, war, a wildly overvalued stock market, debt-ceiling concerns and an empire transition shape the investment landscape.

He then turns to mining stocks. While precious metals including gold, silver, platinum and palladium can be bought now, he says buyers of mining stocks should focus on the $4,300-$4,200 target zone of the current gold pullback. He says that move could send GDX to about $85.

Thomson also says the advance/decline line for the Dow has finally collapsed and that the Nasdaq, the S&P 500 and the Dow itself are likely to follow. He says a crash in the overvalued US stock market could help push GDX toward his $85 target, which would also complete the right shoulder of what he describes as a very bullish inverse head-and-shoulders pattern.

To summarize his view, Thomson says gold stock investors should be ready for what lies ahead, which he says likely includes 15% rates, $15,000 gold, $1,500 GDX and individual gold stocks reaching bull-market valuation levels.

About the author

Stewart Thomson

Stewart Thomson is a retired Merrill Lynch broker. He writes the Graceland Updates daily between 4am and 7am, and they are sent out around 8am to 9am. Thomson says the newsletter is attractively priced and presented in a unique numbered point form designed to provide clarity and save reading time.

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC derivatives iceberg with a tiny portion written off officially. The bottom line: Are You Prepared?