Saudi Arabian Turmoil Brings More Bids into Gold
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
(Kitco News) - The gold price has been rising this week buoyed by two major events happening simultaneously in Saudi Arabia, the world’s second-largest oil producer and single biggest oil exporter. The first was a thwarted missile strike on the Riyadh airport over the weekend, which Saudi Crown Prince Mohammed bin Salman bin Abdulaziz stated was a "direct military aggression by the Iranian regime". Just a few days later, various Saudi princes and at least 200 people, including 38 former and current deputy ministers, were arrested on accusations of corruption.
The Saudi turmoil has lifted the gold price over $1282 resistance and $25 above its 200-day moving average. However, as I type this missive, the miners continue to lag bullion on continued lackluster volume, with the GDX continuing to trade sideways below strong resistance at its 200-day moving average at the $23 level. The news also lit a fire under the Crude oil price and the CRB index, which in turn, has renewed the inflation trade into gold. This reaction has made bullion’s short-term outlook no longer one of simply safe-haven buying, but also of increased inflation expectations.
For the past month, gold has been trading sideways within a $40 range as buyers have not been able to get control over the short-term trend, yet sellers haven't been able to control the trend, either. This conflict has resulted in a stalemate with low trading volume, giving participants no clues lately as to its next near-term directional move. So, we have the bullish inflation trade keeping gold above strong support at the $1260 level, vs the bearish probable mid-December FOMC rate-hike keeping gold below the $1300 level, while the miners continue to trade sideways on lackluster volume.
In previous missives, I have been erring on the side of caution and building up cash by trimming lagging juniors from my portfolio. I have also been monitoring my watch list for buying opportunities since tax-loss selling season is ramping up as we head into year-end. The last few years, late Q4 has been an ideal time to place “stink bids” in precious metal juniors one would like to have a better entry position in and hold for the long-term.
I expect the opportunities during this Q4 to be just as lucrative for junior miner investors as the past two years. As we head into December, retail investors are likely to continue selling losing miner positions from his/her portfolio for tax-loss. Fundamentals and valuations have little consideration during this process, as losers are sold post-haste to raise cash for plowing into more equities for the “Santa Claus Rally”. This becomes a contrarian investors wet dream as one patiently waits for signs of capitulation selling in the various juniors on his/her watch list.
While this possibility persists into year-end, it would be wise to research the best junior miner firms 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.
If you require assistance in doing so, please stop by my website and check out the subscription service at http://juniorminerjunky.com/.