The Gold Sector Tests Strong Support Levels on Fedspeak
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Last week, I mentioned the possibility of strong support levels in the gold sector, which were previously resistance zones, being tested in the wake of the Federal Open Market Committee (FOMC) meeting speech on September 20th. After the hawkish toned language by Janet Yellen had been set to be sold by computer based algorithm trades, the gold price made a bee-line towards support at $1300, while the GDX sank towards the support level of $23.
The U.S. central bank said that it would begin trimming its $4.5-trillion portfolio of assets next month and that it was sticking with plans to hike interest rates this year despite the recent skepticism in the market. The Fed also suggested they will be raising rates three additional times in 2018. In response, futures traders raised the odds of a December rate hike to 72% from 52% earlier in the day.
As I type this missive, gold is close to testing strong support at $1,283, which is the 50% Fibonacci retracement of the entire July through early September rally. If gold fails to break down further, it indicates that 2016 highs will soon be broken on the way to higher targets in 2018.
The mining sector, when looking at the GDX, failed to break out above strong resistance at the $25-$26 level for the third time this year, which has continued to try the patience of miner investors. In my view, this failed attempt of the major miner ETF to finally break out of the now 14-month consolidation is just building a stronger accumulative base to go much higher in the very near future.
I just returned from the Precious Metal Summit in Beaver Creek, Colorado which is attended by the brightest minds in the junior mining space. The mood was very upbeat and the attendance was capped at 1,000 this year, which sold out very quickly. Last year, with the sector still buzzing over a huge move in the miners of 179% in just six months, the attendance was only 750.
On the first day of the conference, the gold sector took a huge hit but you would not know it judging by the mood at the show. While the global miners continue to strategically invest in quality juniors, these sector professionals understand how to take advantage of the early stage cycle opportunities being presented to them in this new precious metal miner bull. Major mining companies need to replace their rapidly depreciating reserves and this has very little to do with the price of gold.
As I mentioned in my weekly column back in May, simply follow the money when researching junior mining companies. No matter how the overall sector is trading, firms with quality deposits will continue to bifurcate from the mining space. This entails anticipating the companies which the global miners may be interested in either taking a position in, or taking over in the future, as well as watching for a good entry on a company which a major has already taken a sizable position.
This is a very appropriate time to begin this approach, while the sector is mired in what has now become a 14-month consolidation period. However, a generous amount of research and due diligence is highly recommended before purchasing a junior miner. If you require assistance in doing so, please stop by my website and check out the subscription service at http://juniorminerjunky.com/.