Gold Miner Investing for Dummies

“A lot of the companies have moved out, they don’t make the drugs in our country anymore. A lot of it has to do with regulation, a lot of it has to do with other countries taking advantage of us with their money and their money supply and devaluation. Our country has been run so badly, we know nothing about devaluation; every other country lives on devaluation. You look at what China’s doing, you look at what Japan has done over the years, they played the money market, they played the devaluation market and we sit there like a bunch of dummies, so you have to get your companies back here.” – President Donald Trump, January 31, 2017

If you were on the fence about whether to invest in the precious metal miner sector, or add to your miner position, just cut this quote out and tape it to your computer monitor.

Gold made a monthly close above $1200 per oz. soon after this statement. I believe this level will hold on a monthly basis going forward as this new gold bull could heat up with the Trump Era currency war just beginning.

While the above quote is directed at the Yen and the Yuan, the Trump administration is also going after Germany, as Trump trade adviser Peter Navarro this week stated the "grossly undervalued" euro served as a currency for Germany alone, allowing the country to "exploit" the United States and others.

After just two weeks in office, Donald Trump has already shaken up the global landscape with an Executive Order on Interior Immigration Enforcement. While the liberal US media continues to stir the pot of dissention among the American citizenry, we even have former President Obama effectively setting up a shadow government declaring he now supports all the protests against Trump.

As the political landscape becomes more uncertain, the safe haven trade should continue to benefit the precious metals sector while the ongoing currency wars will likely add more fuel to the new precious metal bull market.

While the “US Dollar is too strong” rhetoric continues from the new US Administration, the record long hedge fund position from last month in the US Dollar continues to unwind. This is bringing more longs into bullion as the very important 100 level on the USD Cash Settle Index has now been broken, even before a dovish Fed voted 10-0 to leave rates un-changed this week. Uptrend line support is at 97 on the index and could possibly get there on this move down, which began on the very first trading day of the year.

I am now looking for gold to hit the $1250-$1270 area on this move with the GDX possibly hitting 28-30 before a correction of 15-20% in the index takes place. Sentiment in the sector has remained weak as the miners continue to climb a wall of worry, while leading the gold price higher. Many of the quality miners have been breaking out of individual consolidation patterns as well during this rebound off of strong support in the GDX at $22.50. As mentioned a few weeks ago in this column, I believe $1225 gold should get the GDX to the $25 region. A weekly close above the $25-$26 level in the GDX and $1225 in gold will further solidify the case for a major bottom being in place for the sector.

By the time this missive is posted, we will have the results of the first Non-Farms Payroll Report (NFP) of the year, published at 8:30am EST, an hour before the market opens on February 3rd. The NFP often has an oversized impact on the precious metals as traders try to price in the timing of the next Fed rate hike based on the information from the jobs created in January. The ADP number, released on Feb. 1, was very strong so chances are we could get an equally strong NFP as well. If so, after the dust settles from the computer algorithm based trades, I believe weakness should be bought in your favorite precious metal miners. The Chinese market also comes back over the weekend after being closed this week for the Chinese New Year festivities.

If you concentrate on investing in the quality miners which own or control large deposits with district scale land packages and are economic at $1200 gold, you should do very well going forward into the next decade.

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."