4 Possible Catalysts For The Gold Sector into Year EndFriday October 28, 2016 14:36
The precious metals miners have outperformed all asset classes this year by a wide margin. This unloved and beaten down sector in January was down over 85% from the highs reached in 2010-11. The miners are still technically in a downtrend, having corrected the 179% move from earlier this year by up to 30%. Unless we get a weekly close above 26 in the GDX, I expect the correction will continue by evolving into a longer-term consolidation.
As we head into what has seasonally been the best time of year for the sector, here are a few possible major catalysts to mark on your calendars:
November 4th: The Non-farm Payrolls Report (NFP) for October will be released on this date at 8:30am EST. The gold sector usually sells off into this report and becomes very volatile after the release as computer algorithm trades are set beforehand based on the expected number of jobs created. This is a highly anticipated report as the results will be heavily factored into the Fed’s decision process of whether or not to raise interest rates in December. The market is factoring in a 70% chance of a quarter point raise on December 14th as of this post.
November 8th: The US election could very well be a major catalyst as during the last Presidential Debate, Donald Trump made accusations of the election possibly being rigged against him. He has also stated if defeated, he will not commit to accepting the outcome, stating “I will tell you at the time”. This is a very dangerous statement and could easily trigger violence after the outcome. Also, if victorious, the decision could very well cause a “Brexit” type response in the gold sector as Trump is the anti-establishment candidate.
December 2nd: The release of the final NFP report before the highly anticipated last Federal Reserve Open Market Committee (FOMC) meeting of the year will be released at 8:30am EST. This could possibly be the deciding factor on whether or not Fed chairwoman Janet Yellen decides to raise rates this year.
December 14th: On this date the market will finally find out the answer to the question of, “will she, or won’t she”. If the Fed decides to raise rates at the conclusion of the December 13-14 FOMC meeting, the gold sector could initially sell off as it did last December. However, I believe this would be a buying opportunity as rising rates have historically been bullish for gold as we saw back in the late 1970’s when former Fed chair Paul Volcker raised rates to over 20%. During this time gold had the largest bull market in history as it soared from $105 in September, 1976 to $850 in January, 1980. Also, in December of last year after 7 years of zero rates, the Fed finally decided to raise rates a quarter point. What did the miners do a month after the raise? As previously stated in this article, they only went up 179% in less than six months!
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."