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It May Be Time to Take Some Chips Off the Miner Table

Commentaries & Views

As mentioned in my article from earlier this month, the US equities have begun a parabolic move which has kept pressure on the gold sector. With investors in “risk on” mode, they have little interest in the gold space at this time. Late last week, despite a strong weekly close above the $1300 level in gold, the GDX finished with an underwhelming weekly performance.

The lackluster action of the major miner ETF in the face of the strong bounce in bullion proved to be a bad omen for the miners on the following Monday. The GDX was hit hard at the open this week, as gold reversed and closed below $1300. While all of this action continues to trade with historically low volume in the GDX, I am expecting the $22 level to be tested as we head into the next Federal Reserve Open Market Committee (FOMC) meeting on November 1st.

Markets currently price in the odds for a rate hike at the Dec 13 meeting at 90 percent.  If we get a more hawkish tone from the Fed in the FOMC meeting speech on Nov. 1, the miners would be susceptible to more selling. The US Dollar reverse head and shoulders bottom on the daily chart of the Cash Settle Index could also be a short-term red flag for the gold sector. If the 94 level on the Index is breached, there is not very much resistance until the 97 region.

Precious metal miner investors also need to bear in mind the implications of tax-loss selling as we head into the final FOMC meeting on December 13th. With the probability of the Santa Claus rally in the US equity market continuing to fuel the market, investors with miner losses will be dumping their losing positions for tax-loss, which would also provide them with more cash to pour into US equities into year-end.

I am now psychologically and monetarily preparing for the $1200-$1215 level being tested as we head into the final FOMC meeting in December. If this area is indeed tested in bullion, then there would be some very good buying opportunities in many of the best-in-class juniors.

In preparation for this possibility, I have been cutting miner laggards which I feel could be susceptible to tax-loss selling and have also placed a small hedge in DUST, which is the 3x Daily Direction GDX Bear Index. The 3X short ETF’s are extremely dangerous and should only be used with a tight mental stop-loss while babysitting the position. I would sell this position for a loss if the GDX closed above the $24 level, and would also close it out if the GDX traded below the $19 level.

While this possibility persists, it would be wise to research the best junior miner issues which have either already made a significant discovery, or are developing large deposits. However, a generous amount of research and due diligence is highly recommended before purchasing a junior miner.

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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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