Will Miners Break Down Into Brexit, Fed Meeting?Friday July 15, 2016 09:32
Editors' Note: David Erfle’s weekly commentary will be on hiatus for June and will return in July.
The highly anticipated vote on whether the UK leaves the European Union is fast approaching on June 23. However, the Federal Reserve meeting, June 14-15, precedes that vote.
The Fed, which will hold a press conference June 15 following its decision, will raise rates another 25 basis points, or not!
Both of these events could be huge catalysts for the gold sector as traders have been taking some profits after a huge run that saw GDX up more than 125% from the bear trap bottom on Jan. 19. Sideline watchers have been waiting for a buying opportunity that so far through Thursday, has been less than 20%.
However, there is a chance of a larger correction in gold if the $1225 level is broken this Friday. This level is the uptrend support for the move of the last few months that was looking like a huge base, but now is looking more like a huge top.
This level held after option expiration Wednesday, as there were a large number of options that expired worthless above this number all the way to $1300. As soon as the COMEX session ended the miners bounced after selling into the expiration at 1:30pm EDT. They don’t call it the “CRIMEX” for nothing!
I have been anticipating a larger rally of the GDX to 28-30 level and the HUI to 250-260 level before taking profits in trading positions; however, I believe the change of this move happening is now less likely. If there is a close below GDX 22 and HUI 200 this Friday, then we could be looking at possible downsides of 19-20 GDX and 165-175 HUI before resuming higher. The long three-day weekend could nudge traders into further profit taking as First Notice Day for the June gold contract looms on Tuesday which could push spec longs to liquidate rather than roll over their positions.
The sector could be very volatile between these two market-moving events and it may be wise to be out of miner trading positions with ample dry powder until they pass. As for myself, I continue to hold core positions that I have been accumulating since December 2015 with some cash for “stink bids” of a few I would like to own at lower prices.
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."