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Miners Snooze While US Equities Soar

Commentaries & Views

The month of October has historically not been very kind to over-valued US markets, especially a market which has been long over-due for a 10-15 percent correction. But the “Most Hated Bull Market in History” (dubbed by a few sector pundits) has now begun to do the exact opposite of correcting, by beginning to go parabolic.

The Dow Jones Industrial Average (DJIA) has been ascending so steeply as to be all but un-tradable, gapping up at the open on numerous occasions since “crash season” began in September. Long suffering bears have yet again been forced to cover recently placed short positions in the major US market indexes while many continue to forecast a US equity correction. This has only added fuel to the US equity fire.

Meanwhile, the precious metal miners continue to wallow in sideways trade on historically low trading volume, despite the highest quarterly volume of all-time for gold futures trading history, for the quarter ended September 30. The GDX has now began month fifteen of consolidating the initial six month up-leg which took place in the first half of 2016. Investors continue to ignore the miners as US stocks remain in a “risk-on” environment.

However, many exploration juniors, which have made significant discoveries, continue to bifurcate from the sector and trade higher, irrespective of the gold price. Investors that have been fortunate enough to hold even one of these firms have likely had an exceptional year, and if one has been lucky enough to hold two or more then the GDX has been the least of their worries during this 15-month consolidation process.

This long miner consolidation has been beneficial to investors who are still accumulating positions. We are nearing tax-loss selling season, which could benefit investors looking for better entry points on select juniors they missed out on during the first leg higher last year.

Some of the juniors which had big moves higher based on grassroots discoveries, have drawn the attention of global miners who have taken strategic investment positions in their stock. Strategic private placements have evolved into a viable source of funding for junior companies. These financings should continue as a result of the recently concluded conferences in Beaver Creek and Denver, Colorado. Keeping abreast of these deals is a prudent research component for investors in the space going forward.

By the time this article is published, we will have the results of the September Non-Farms Payroll (NFP) report. On three previous NFP’s this year (May, June, and August) prices reversed on the Tuesday following the report, so the odds favor a bottom in the sector during the next few trading days. The level to watch on the GDX is $22, which is strong support. If this level is breached on a weekly basis with strong volume above 100m shares traded, then the $17 area may be tested before this consolidation concludes. However, the odds of this happening are very slim, with the sector lacking enough sellers to break $22 in the major miner ETF.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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