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Junior Gold Stocks - The Best Deep-Value Play for 2019

Commentaries & Views

Equity investors who have grown accustomed to a “Santa Clause Rally” in late Q4, have instead received a lump of coal from Mr. Market this year. It appears as though a few big money traders and fund managers, who are in the process of leaving their respective desks for the holidays, are making sure to have some golden insurance before squaring their books for year-end. 

The Federal Reserve raised interest rates on Wednesday, as expected, but forecast fewer rate hikes next year. They also signaled its tightening cycle is nearing an end in the face of financial market volatility and slowing global growth. Both gold and its miners rose strongly into the last FOMC meeting of the year but immediately began to sell off after this news was released, having already been priced into the sector.

Heading into Fed Chair Jerome Powell’s speech, both gold and the GDX had back-tested their respective 200-day moving averages but computer-based algorithms triggered sell orders on the announcement. The “sell the news” reversal lower in gold stocks was especially strong, moving the global miner ETF down over 5% with big volume during the Fed’s press conference following the speech. Heavy selling also came into U.S. equities, which saw critical support levels being broken in all of the big board indices.

However, once the overseas exchanges opened on Wednesday evening, gold began to rise from the $1245 region and picked up steam as U.S. market fears continued on Thursday morning. There are concerns over a government shutdown threatened by President Trump and the continuing trade tensions with China are spooking investors into safety.

Safe-haven buying, coupled with strong U.S dollar weakness, sent bullion towards its next resistance level at $1275 and ended the COMEX session firmly above its 200-day moving average yesterday. The $1268 close was its highest settlement in almost six months, while equities continued to sell-off and has the S&P 500 Index threatening to close at a 52-week low today.

Although gold is now firmly above its 200-day moving average, the GDX is seeing a battle take place at its 200-week moving average, which lies just below strong resistance at $21. As mentioned in this column last week, a yearly close above $21 in the global miner ETF, coupled with a 2018 close above $1260 in gold, would be technically bullish for the precious metals complex going into 2019.

Meanwhile, the few remaining tax-loss sellers have been dumping their shares in most of the beaten down small and micro-cap developer/explorers, along with early stage exploration companies this week. This has garnered excellent entry points for long-term contrarian speculators as one investor’s tax-loss trash, becomes another investor’s contrarian treasure. Since this has been a particularly dreadful year in the entire junior resource stock complex, most of the quality juniors are being sold right along with weaker ones’ and are trading at fire-sale prices.

Moving into 2019, there are a few trends which are continuing to heat up as we conclude a year of turmoil in the global marketplace. The global economy has turned down heading into the new year and presents a real crisis. Quantitative easing in Europe has completely failed in stimulating economic growth and instead has simply kept governments on life-support. The sovereign debt crisis in both the European Union and Emerging Markets, coupled with growing global civil unrest over political uncertainty and rising taxes, will bring more safe-haven capital into the precious metals complex. 

Furthermore, the Democrats have dialed up the "impeach Trump" rhetoric before they take control of The House in January. MSNBC’s Chris Matthews said Monday that President Donald Trump could resign as part of a deal with special counsel Robert Mueller.  Meanwhile, a former top official at the Justice Department argues that President Trump can yet be indicted for campaign finance violations as part of a possible decision to delay his trial until after he leaves office. 

With the crypto and cannabis space having seen mania tops and Tax-Loss Selling Season behind us at the close of trade today, I see beaten down junior mining stocks coming back onto the radar screens of investors heading into next year. The most attractive value opportunities for high-risk/high-reward speculators lie in the junior precious metal equity space, as they will be re-directing speculative capital back into the small and micro-cap juniors in 2019.

A few of the gold juniors I have purchased over the past few weeks and/or follow, have already begun to receive bids from cashed up speculators. It takes a lot of time and effort to find these opportunities and it is best to be on the hunt for them when the juniors are out of favor and being sold for tax-loss. When this sector turns, the stock prices in the quality issues move up quickly, so if you require assistance in choosing the best quality juniors to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/

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.