Never Sell a Dull Market...All Eyes on the FOMC Next Week
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
When I first discovered the mining space over fifteen years ago, I became mesmerized by the extreme volatility of the junior miners. After the meteoric rise of the Nasdaq into the turn of the century had ended, the junior resource penny stocks became exciting again and lured many momentum junkies into its lair. This high-risk, high-reward sector has been accused in the past of driving investors completely out of the stock market in disgust but has also made a select few very wealthy.
However, I have rarely heard gold stocks being referred to as “boring”. But thanks to the wild volatility of pot stocks and the crypto space since mid-2017, gold stocks have become very boring indeed. This lackluster gold market has caused many investors to turn their attention elsewhere, as participation diminishes and the market awaits its next big directional catalyst. When analyzing “Google Trends Interest over Time” for gold stocks, you will find they have trended down well below the major bottom created in the GDX during the first weeks of 2016. The current volume in the major miner ETF is trading at historic lows and recent precious metals volatility has also reached extremely low levels.
Never sell a dull market . . . is an old saying; so, while the gold stocks continue to languish in boredom and obscurity, the smart money will continue buying the quality miners which are being sold at discount levels due to lack of patience and growing disgust. Earlier this week, John L. Thornton, Executive Chairman of the largest gold mining company in the world, Barrick Gold Corp. (ABX), purchased over $3.5 million of ABX in the open market. Barrick’s share price has been cut in half since mid-2016 and is trying to bottom around the price Mr. Thornton just paid. When a sector bellwether like ABX makes a solid bottom, the confirmation of a GDX long-term bottom may not be too far behind. In fact, back in 2015, it was one of the first miners to bottom well ahead of the sector.
The directional catalyst precious metal investors have been waiting for could very well be the language of new Fed Chair Jerome Powell’s FOMC meeting speech on March 21st. Although the announcement of another rate hike is a virtual lock next week, the new Fed Chair’s policy language and post meeting press conference could very well determine whether the miners break-out soon, or break-down further.
Last Friday, I was pleasantly surprised by the non-reaction in the gold space to the much better than expected US Non-Farms Payroll (NFP) report. However, newly appointed U.S. National Economic Advisor Larry Kudlow put a crimp in the sector after an interview with CNBC Wednesday that he supports a strong U.S. dollar policy saying, “I would buy King Dollar and I would sell gold.” The comments by Kudlow assisted in keeping pressure on the gold space through yesterday’s close. Meanwhile, the GDX continues to trade as if it is waiting for the aforementioned catalyst so that it can make up its mind which way to break.
We still cannot rule out a sharp move lower before making a final low because historically, when the miners are acting sick by continually lagging the gold price, they usually need to puke before getting better. While the extremely low volatility in the sector, combined with tremendous apathy for gold stocks, does not guarantee a huge move in either direction being imminent, we should find out which way the sector will break after the FOMC speech by Jerome Powell next week has been interpreted by the market.