Dogs Days of Summer Ending with Critical NFP Report on Sept. 2

The highly anticipated Non-Farms Payroll (NFP) Report for August will be released Friday, Sept. 2nd, at 8:30am EST. It is arguably the most important report to date this year. The ADP report released this Wednesday matched expectations bringing a rate hike into focus but if recent history is any guide, (each of the past five August jobs reports have come in below the median estimate) prepare for softer than expected job growth.

Fed chair Janet Yellen’s Jackson Hole speech last week was deciphered by the Market as the Fed taking a “wait and see” approach to a more definite chance of a September interest rate hike until after the August NFP is released.  Many believe that a better than expected report would guarantee a September rate hike of 25 basis points accompanied with a USD rally and gold losing strong support at $1300 area. On the other hand, a report of less than the expected 185,000 jobs created would probably lower the odds of a rate hike at the next Federal Reserve meeting on September 20-21st.

Before this report is released each month, the miners typically sell off into the release and depending on the outcome, end the selling with either a reversal, or a capitulation type sell off if the report comes in better than expected. This is a very good time for long-term sector bulls to accumulate their favorite miners as panic selling has sprung up ahead of Labor Day and the return of the big money traders. I am looking for GDX 24-25 and 210-220 HUI area to hold this week as this is a 20% correction from the early August high. The GDX 25-26 level was very strong resistance during the bear market heading into 2015 and before the capitulation phase that followed into this January, so a retest is normal and healthy.

However, although a rate hike is being priced in this week, a better than expected NFP of over 200,000 jobs could possibly trigger more panic selling down to the GDX 22-23 and 190-200 HUI where gaps will probably fill quickly. I would expect buying to most likely begin to take place if these levels are reached after the market has digested the reaction, as the sector would be very oversold. Those huge gaps up in early June were created by the unexpectedly bad May NFP release on June 3rd which put to rest any near term rate hikes at the time and provided a catalyst to catapult the miners higher.

A good approach to initiating miner positions here would be to buy half of your position on Thursday, September 1st, then buy the other half after the reaction to the NFP is priced in.  A 20-30% correction in the miners here and now is very healthy and a good opportunity for long term investors that have yet to take positions.

With the US election only two months away, I do not see the Fed doing anything to disrupt the markets heading into November 8th as they will be doing everything in their power to get the bankers choice of Hillary Clinton into the White House. In other words, I believe the odds to be very slim for a rate hike before the election and for gold to hold the $1250 level after Labor Day and into September, which happens to be the strongest seasonal month for physical gold buying. Gold $1250 was also the low just before the Brexit vote.

By David Erfle Contributor to Kitco News
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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."