Gold Stocks May Gain as Rates Rise

Stewart Thomson

In an interview on Monday, Fidelity fund manager George Efstathopoulos said gold investors are now less focused on rising yields and more focused on why yields are rising. He also said he had doubled his fund’s exposure to gold.

Thomson said mainstream media’s gold-and-rates narrative is breaking down, and that fund managers such as Efstathopoulos are beginning to treat that shift as the new normal.

He said the United States has arrived at this point after 50 years of what he described as reckless global government spending, along with an attachment to fiat money and debt.

Thomson argued that U.S. rates and stagflation began a new 40-year cycle in 2020, and that gold could gain about $1,000 an ounce for every 1% increase in rates.

He said that tomorrow’s PCE report and Friday’s speech by Fed Chair Kevin will not matter as much as the U.S. government’s refusal to cut what he called outsized spending and massive debt.

Thomson also said the Treasury’s effort to stop lower long-term rates by buying yen has failed. He said institutional confidence in the Federal Reserve is “on thin ice,” and confidence in the Treasury is also declining.

While he said a short-term pullback in rates is possible, Thomson pointed to an inverse head-and-shoulders pattern that suggests the next “pit stop” is 6%, which he said would likely coincide with $6,000 gold.

He said the longer-term case for gold remains strong, but that the latest move against fiat currencies is stretched in the short term based on technical and sentiment indicators.

Thomson noted that the RSI oscillator is overbought, though not in the same way it was at $5,600, and he said stochastics is also overbought.

He said mainstream media appears unusually enthusiastic, adding that there is clearly some sentiment-driven froth in the market.

In his view, the path remains open for gold to move toward the major resistance zone of $4,800 to $5,000. At the same time, he said a short-term pullback could take gold down 5% to 7%, while silver and GDX could fall 10% to 20%.

If that happens, he said investors who did not buy in the $4,100 to $3,900 zone would get another chance to enter the gold bull market.

On silver, Thomson said support is strong at $61 to $63. He said stochastics is overbought, but RSI suggests silver could continue rising in the near term even if gold weakens.

He said the market remains strong, so some partial profits should be taken. In his view, professionals sell into strength while amateurs try to call tops.

Thomson also said GDX has risen almost 50% in about a month, which he described as an annualized gain of roughly 600% and not sustainable.

He said GDX could reach $200, $500, and even $1,000 over the long term, but that the current environment favors booking short-term gains while keeping core positions.

He said investors should stay focused on the larger picture as inflation, tariffs, war, a highly overvalued stock market, debt-ceiling concerns, and what he called an empire transition shape the investment backdrop.

Thomson said a gold stocks sentiment index is not yet overbought, although RSI is. He said that makes modest profit-taking appropriate.

He added that a blowoff move into overbought territory would be likely if the Jackson Hole meeting features central bankers who do not directly blame government spending and debt obsession for rising rates. He said that scenario could push gold to $5,000 and lift GDX to $110 to $120, at which point he would expect more profit-taking.

He said a GDX-versus-gold chart shows why investors should keep core positions, noting that an Elliott “C” wave is only just beginning. According to Thomson, the C wave is the most powerful of the Elliott waves, and GDX is already on track to post its highest monthly close against gold since 2012.

Thomson said many mutual fund managers are required to remain almost fully invested in equities. As the government bond market continues to implode, he said the overvalued stock market will follow, and managers who need exposure to assets that are not breaking down may increasingly look to the miners for that role.

He concluded that “righteous glory” awaits gold stock investors around the world.

About the author

Stewart Thomson

Stewart Thomson is a retired Merrill Lynch broker. He writes Graceland Updates daily between 4 a.m. and 7 a.m., and the newsletters are sent out around 8 a.m. to 9 a.m. The newsletter is presented in a numbered point form designed to improve 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?

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