Gold Bulls Whipsawed
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
In Wednesday’s highly anticipated FOMC meeting speech, the Federal Reserve took a slightly more hawkish policy tone in signaling two more rate hikes by year-end. However, the gold complex chose to focus on the Fed’s rather tepid view of inflation as Fed Chair Jerome Powell pledged to keep rates low enough to bolster the economy for “some time” and signaled it would tolerate above-target inflation at least through 2020. Despite policy-makers projecting two more rate increases by the end of this year, compared to one previously, gold remained firmly above $1300 by Wednesday’s close.
Next up on the central bank calendar the following day was the European Central Bank (ECB) meeting, which was held in Riga, Latvia. After the conclusion of the meeting, ECB President Mario Draghi proclaimed the opposite of U.S. monetary policy strategy when he stated there will be no move on rates at least through the summer of 2019. Draghi also specified the quantitative easing (QE) program will stop at the end of the year. After his statement was completed, safe haven capital rushed into both gold and the U.S dollar as the euro sank nearly 2% on the day.
Since mid-April, the stubbornly strong world’s reserve currency had been keeping the technically oversold gold price from launching a rally. However, yesterday’s surprising strength in bullion along with the surging dollar gave new hope for the gold bulls. But a stunning reversal this morning has gold speeding towards support at $1280. The gold price back-tested its 200-day moving average around $1308 yesterday and the sharp reversal from this important technical line does not bode well for the short term. In order to remain near-term bullish, the gold price needs to hold the $1280 region or we could see a quick trip to the $1260 area soon.
The GDX has continued to hug its higher trending 50 day moving average for the past month and been trading between $21-$23 since early February with historically low trade-weighted volume. As mentioned in last week’s column, the global miner ETF has been setting up for a near-term break in either direction for the past few months and been trending higher since it bottomed on February 9th. Nevertheless, if this sudden reversal in gold does indeed break $1280, the low in the GDX just below $21 could be tested soon.
Most are assuming yet another typical “summer doldrums” scenario for the juniors as we head into the normally slow months of July and August. It is my contention that the normally slow summer period in the sector began earlier this year while many juniors have already reached sold out levels and are beginning to form significant lows. Historically, after the miners have made a significant bottom, the juniors tend to lag before joining the rally.
Recently, there have been many quality junior resource stocks being sold by impatient investors, creating opportunities for speculators with cash and patience. It takes a lot of time and effort to find these opportunities and it is best to be on the hunt for them when the gold space is out of favor. When this sector turns, the stock prices in the quality issues move up quickly, so if you require assistance in choosing the best quality juniors to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/