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Gold Sector Pops During Conference Week in Vancouver

Commentaries & Views

Like most American males, I enjoy NFL Playoff football and have been an avid New England Patriots fan since I was a kid. Weather you love them or hate them, they have provided a very well-played AFC Championship game the past seven consecutive seasons. Unfortunately for mining junkies such as myself, the game is always played on the first day of the Vancouver Resource Investment Conference (VRIC), so I am limited to glimpses of the game on the conference room floor while trying to get the most out of what I have flown over 1,250 thousand miles to attend.

However, I was less disappointed in missing most of the contest this year due to the overwhelming attendance at the conference. Judging by the standing room only crowds in most of the workshops and main room presentation hall, the appetite for risk in the junior miner space is coming back into our tiny sector in a big way. The high amount of retail investors in attendance bodes well for the sector in 2018, as most of the over 250 companies at the conference were high-risk, micro-cap opportunities in early stage, exploration juniors.

The move off of the mid-December lows in gold continued while the trio of miners’ conferences in Vancouver, the Metal Investors Forum (MIF), VRIC, and AME Roundup, were being held the past few weeks. On Tuesday, the early weakness in gold and the miners reversed mid-day and accelerated when the slumping US dollar fell to a three-year low and dipped below the psychologically critical 90 level on the Cash Settle Index. The gold rally continued into Wednesday evening until it reached $1365 in Asia before the European Central Bank left interest rates unchanged, while suggesting they will remain at current levels for an "extended period of time.”

However, as I type this missive on Thursday afternoon, the GDX has made a sharp reversal after nearing long-term resistance at the $25 region, while gold is attempting to hold the $1350 level. The reversal in the GDX on Thursday also came on trading volume eclipsing that of rally days over the past few weeks, which does not bode well for a continuation of this move in the miners for the short-term.

The extreme volatility in the sector this week came from comments out of the World Economic Forum in Davos Switzerland influencing the extremely over-sold US dollar. On Wednesday, US Treasury Secretary Steven Mnuchin was quoted by Bloomberg as saying: "Obviously a weaker dollar is good for us as it relates to trade and opportunities". The following day from Davos, president Donald Trump said in an interview: “The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar. Our country is becoming so economically strong again and strong in other ways, too."

I am still looking for a monthly close above $1375 in spot gold, which I believe would bring enough buying power into the mining space to clear the all-important $25 level on the GDX. Although bullion may be getting a bit over-extended for this to happen by the middle of next week, I expect the quality juniors will continue to bifurcate from the sector and trade with an upward bias before $1375 has been breached on a monthly basis.

If you are not fully invested in the sector, I strongly suggest continuing to buy weakness in the best junior gold & silver developer/explorers and sub $1 billion market cap growth-oriented producers. A collection of micro-cap, early-stage explorer “lottery tickets” is also advised if you do not mind a bit more risk. And judging by the cryptocurrency and pot stock moves lately, I believe the mining space is no longer the riskiest sector in the stock market and has instead become the last deep value alternative left in the marketplace, especially when you consider the fact that the mining space has a combined market cap of roughly one half of 1% percent of the stock market.

To put this into historical perspective, at the peak of the last precious metal miner bull market in 2011, the miners made up 2% of the stock market and by the end of the fabulous gold bull which ran from 1971 to 1980, gold investments as a percentage of Total Global Financial Assets had reached 5.0%. This means gold investment as a percentage of Global Financial Assets were nearly 9 Times greater in 1980 than it is today. In the event gold investments as a percentage of Global Financial Assets again rises to 5.0%, it means $5.25 trillion will flood into gold.

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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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