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Gold Rally Pauses at the Trump/Modi Highs

Commentaries & Views

After rising five consecutive weeks, gold has paused at the $1340 level, which is the level bullion reached just after Donald Trump was declared the 45th President of the United States on November 8th, 2016.

However, this shocking and gold bullish news was immediately “trumped” by India’s Prime Minister Narendra Modi announcing the confiscation of the country’s largest currency bills.  Abolishing the 500 and 1,000 rupee notes, worth about $8 and $15, effectively removed over 85 percent of the currency in circulation by the end of 2016. With India being the second largest consumer of bullion, the announcement caused gold to make a strong reversal on huge volume after rising quickly on the Trump news.

The safe-haven currency proceeded to decline over $200 during a six-week long losing streak into the end of 2016. The Modi currency confiscation news was very instrumental, along with the black cloud of rising U.S. interest rates, in keeping gold well below very strong resistance at the $1400 level for another year. After the news, the gold market in India went almost completely underground as many people without bank accounts, which is 50% of the population, were afraid of cameras recording their purchases and having to pay outrageous bribes.

Fast forward to the present, we now have a very weak US dollar which has been pushing the gold price higher, along with just about everything else. The 90 level on the Cash Settle Index has been reached, but the buck is short-term over-sold and the suddenly lagging miner sector could be telegraphing near-term gold weakness.

Gold is now becoming overbought on daily basis and the miners, beginning to lag the yellow metal, could be signaling a short pause in the sector. As mentioned in this column last week, we may need some selling to come into the extremely over-bought US stock market before we see big money begin to get back into the mining space.

Nevertheless, there have been strong Q4 financials announced by a few former laggards in the GDX. Namely, Goldcorp (GG) and Yamana (AUY) have announced strong quarters and sector leader Newmont (NEM) is trading at a 52-week high. Strong drill results in exploration stage juniors and releases of high-margin project Preliminary Economic Assessments (PEA) and Feasibility Studies continue to be rewarded as well.

Despite the positive action of a few select juniors and global miners, the GDX began lagging gold ahead of this pause and is consolidating above support at the $23 level. The major miner ETF still needs to clear the $25-$26 area before we can get too excited about the near-term possibility of another leg higher in gold stocks.

Moreover, silver juniors, which were leading the miners, have now begun to roll over this week just as they were nearing their respective 52-week highs. In the meantime, the now 18-month consolidation in gold stocks continues and weakness should be bought in the quality juniors while the sector remains a stock-pickers market.

I will be giving a presentation entitled “How to Build a Successful Junior Resource Stock Portfolio” at the upcoming Vancouver Resource Investment Conference (VRIC) this Sunday, January 21st. If you plan on attending, please stop by and have a look.

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.