Miner Blow Off Or Break Down?Friday May 13, 2016 09:46
The Non-Farm Payroll Report (NFP) for April will be released this Friday, May 6, an hour before the market opens at 8:30 EDT. My editorial from a few weeks ago focused on the huge impact this highly anticipated market-moving report has had on the precious metal mining sector since the metals bear market intensified in 2013. /commentaries/2016-04-22/Fedspeak-and-NFP-s-and-Bears-Oh-My.html
Gold and gold stocks have cooled off in recent days after rocketing higher in the wake of a dovish Fed decision and minutes and figure to look to this Friday’s NFP for near term direction. Gold stock indices such as GDX & HUI have climbed toward heavy resistance levels of 28-30 & 250-260 respectively and have yet to drop 20%, which is considered routine for the sector.
The US Dollar is also approaching a very important support level of 92.50 on the USDX. The metals have been trading higher along with a falling dollar as the Federal Reserve has backed off of raising interest rates further after the token 0.25% raise last December. A lower than expected NFP number could possibly push the USDX below 92.50. This could also spark a seldom seen commercial short covering move in the metals as their net short position has been rising along with gold and silver since the end of January. This could take gold over $1,400 and silver above $21 as the miners would possibly gap up Friday morning, then embark on a blow-off move to the aforementioned major resistance targets of GDX 28-30 and HUI 250-260.
On the other hand, a better than expected NFP could extend current weakness in anticipation of a June rate hike from the Fed. The USD could extend its bounce as metals speculators take profits in the miners and metals. In this scenario I would look for a swift correction in the miners down to GDX 21-22 and HUI 190-200. If you have been a spectator up to this point, this would be the opportunity you have been waiting for to pick up your favorite miners on weakness.
The U.S. economy is expected to have added 200,000 jobs in April, slightly lower than March. If we see a figure that is considerably higher, or lower, then a significant precious metals sector move is likely. In any event, a 20% correction could very well be close at hand and the NFP could be the next catalyst that causes that to happen immediately or later, after a blowoff move first.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."