Sold Out Miners Await Fed Rate Hike(s)Friday December 16, 2016 13:36
As I mentioned last week, the miners continue to diverge from the gold price as we trade into the highly anticipated Federal Reserve (FOMC) meeting speech at 2pm EST on Dec. 14. Gold and the GDX are clinging to their 61.8% Fibonacci retracement levels from their respective mid-summer highs. Those levels are 19.80 in the GDX and $1169 basis close in gold and also happen to be the last lines of defense for both to technically remain in a new bull market.
The GDX reached 20.13 three weeks ago and has formed a three week saucer bottom on the daily chart as I pen this update, while gold is trading at $1170 after spiking below $1160 but has yet to close below $1169. Many junior miner shares in which I own, or follow, have been creeping higher since the middle of November as gold has been going lower into the final FOMC meeting of this year.
The fact that the miners have formed a saucer bottom two weeks before gold managed to reach the same Fibonacci retracement area, gives me reason to believe this new miner bull should remain intact and begin to move up from the solid support area of 20 on the GDX. However, if we get a weekly close in the GDX below this level, I will have to change my investment strategy going forward into the new year.
I have been taking positions since last week in many of the miners on my watch list as I continue to believe this sector is ripe for a huge move early next year as the gold sector has historically performed very well as the Fed begins rising interest rates. Investors selling miners here have very short term memories as the sector began a 179% move off the lows a month after the Fed raised rates just .25 basis points last December. The gold price more than doubled as the Fed raised rates to 5% early last decade which helped fuel the huge gold bull into September 2011. And finally, the massive gold bull in the 1970’s went parabolic as then Fed Chair Paul Volker raised rates to 14.8%.
I believe the market has fully priced in a Dec. 14 rate hike and the sector is sold out as the risk to the downside is minimal. If you have done your due diligence on your favorite miners, this is a low risk entry point to scale into them as tax loss selling has provided you with a nice early Christmas gift!
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."