Silver: Canary In An Inflationary Coal Mine

The demand-side drivers of the gold price are the Western fear trade and the Eastern love trade. The fear trade has languished in recent years, leaving the love trade to do the “heavy lifting” for the price.

That has gone reasonably well; China’s gold mining industry has consolidated and embraced environment-friendly mining. India’s jewellery industry has restructured, with hallmarking poised to become mandatory. 

Both countries have strong GDP and wage growth. In the short term, the US government’s hastily-imposed tariff taxes have hurt Chindian stock markets and fiat currencies. That’s put a modest damper on the growth of love trade gold demand. 

That demand is solid, but it’s not powerful enough to overcome the weak fear trade demand and push the gold price higher…yet.

Double-click to enlarge this important Chinese stock market chart.

All gold investor eyes should be keenly focused on the bull wedge pattern in play here. 

I believe a breakout is imminent, and that breakout should be accompanied by a stunning gold price rally. A few large speculators on the COMEX hold enormous short positions, and a surge in love trade demand would likely cause a massive short-covering panic amongst these speculators.

It’s easy for amateur investors to become over-focused on a tiny US tariffs tree and lose sight of a three billion Chindian citizen forest.

China is already launching stimulus programs to make up for the minor drop in their GDP bucket that was caused by Trump’s tariff tantrum. Copper, aka “Doctor Copper”, is already strengthening, a sign of global economic strength.

China’s GDP in US dollar terms is set to surpass America’s in just twelve years, and in terms of “stuff used and produced”, China’s economy is already substantially bigger than America’s is.   

China can easily outlast America in a long-term trade war; the US government’s debt is too big, its population is too small, its consistent GDP growth rate is far too low, most of its citizens have huge debt, and most of them own no gold!