Gold and Uranium Miner Update as the Trump Era BeginsFriday January 27, 2017 14:27
Gold Miner Update:
As we begin the Trump Era, the gold miners have been trying to build a base in the GDX while trading sideways with a bullish bias at the $22.50 area for the past few weeks. Gold has had a nearly $100 move off the bottom struck this past December, so weakness was to be expected here as gold had become short term over-bought. Consumer confidence recently reached a 13 year high on the back of a Trump victory while the yellow metal tries to maintain the $1200 level as he takes the oath of office on Jan. 20.
In an interview with the Wall Street Journal this week, President Elect Trump stated the U.S. Dollar, which made a more than 14 year high a few weeks ago, has gotten “too strong”. This statement, along with all-time highs in net hedgers’ long positions in the U.S. Dollar, has the US currency beginning to roll over and test the very important 100 area on the Cash Settle Index. Net speculator positions in treasury futures overall are currently equivalent to $100 billion in terms of cash treasuries as this trade has actually stopped working over a month ago. Gold has been trading in the inverse of the US Dollar since Mr. Trump won the US election last November.
Bullish leaning Sentiment and Commitment of Traders reports (CoT) in the precious metals sector have seen very little change recently, as the rebound in gold seems to have been met with disbelief, similar to what we have seen in treasuries. Furthermore, I have also witnessed many of the quality miners in which I hold, or follow, continue to diverge from the gold price.
I expect the stock market could get very volatile during the first 100 days of the new Trump administration while he has many changes planned, as well as a few promises to back-peddle on. This should be very beneficial to the gold sector going forward into the April/May time period.
Uranium Miner Update:
In last week’s missive, I mentioned a very possible sharp correction to the $15 area this week in the URA, the Uranium miner ETF, as the sector was very over-bought in the short-term. I believe the sector completed a long-term 18 month bottom when the URA broke out on very strong, all-time record volume from the $15 level last week. A test of the break-out level is normal and healthy in order to sustain a strong base in this sector after a six year brutal bear market in which the URA lost over 90%. The sharp sell off was triggered after Cameco, the miner sector leader, announced significantly lower than analyst estimates and that it would cut 120 jobs at three of it’s uranium mines.
This announcement was enough to sell off the URA down to $15.25 as Cameco, the largest holding in the ETF, sold off over 18% after the release. Even though this long-term bullish U308 news should not have come as a huge surprise to the beaten down sector, it was enough for traders to take very nice short–term gains in the Uranium miners. As I pen this missive, the URA is forming a bullish hammer on the weekly chart from what is trying to become strong support around the $15 level. I believe weakness should be bought in the quality U308 miners here as I also believe this sector continues to build a major bottom as the probable long-term upside far outweighs the possible short-term downside.
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."