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Solid Foundation for Gold?

07/21/2014 9:00 am EST


Brien Lundin

President, Jefferson Financial, Inc.

From a technical standpoint, gold has built a foundation that’s as solid as one could hope for; the fundamentals are still lacking, but that could change very soon, suggests Brien Lundin, editor of Gold Newsletter.

Despite this being the seasonal slow period for gold, there’s been lot going on in the market for the yellow metal. In fact, the picture for gold has changed dramatically in recent weeks, particularly from a technical standpoint.

One month ago, gold broke through the long-standing support line at $1285. The bottom was soon found at $1242, and from there, gold began a fairly steady climb out of the gutter.

The climb was punctuated, however, by one very important trading session on June 19, when gold unexpectedly jumped nearly $50. Interestingly, there wasn’t one single, overriding factor that propelled gold higher. Instead, it was a series of smaller catalysts until the shorts were stampeding for cover.

Among the facts that started the move: Fears of retail price inflation, a sharp drop in the dollars, and escalating tensions in Iraq.

The type of foundation that gold has built up over the past year is indicative of a very powerful, longer-term rally ahead. Time will tell whether a massive move like the late 1970s is in the cards, when gold rose 450%. But one thing is clear: The technicals are indicating that something very important has changed for gold.

Indeed, in the wake of last year’s deep correction in gold and silver, the fundamental supply/demand strutter of the market has shifted. I’ve been reporting on the massive flows of gold from Western speculators to Eastern savers for over a year now.

Add it all up and there’s no doubt that something fundamentally changed in the global gold market—and that is the rise of Asia, led by China.

If Asian demand is supporting gold so strongly now—during the slow season for buying—then what will happen when Chinese buying heats up in a couple of months, and India rejoins the market as expected?

With this as a backdrop, all that gold really needs to do is to maintain the current levels, avoid serious downdrafts, and wait for the Asian buyers to come.

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