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Gold Stocks Remain Strong as Gold Futures Retreat from $1330

Commentaries & Views

Market expectations of the Fed dropping hawkish forward-guidance for its monetary policy at the conclusion of the FOMC meeting were confirmed by Fed Chair Jerome Powell during late trading on Wednesday. Once the phrase “the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be” was uttered by Powell, both gold and equities began to break strong resistance levels. This loosening of monetary policy will have a downward effect on the value of the U.S. dollar going forward, which will also inversely put upward pressure on the precious metals complex.

Although some profit taking came into the market once February Gold hit resistance at $1330 yesterday, the futures price saw a monthly close above $1325. After seeing six consecutive months of continuous selling, gold has managed to close up four months running and closed January at a 9-month high. The last time a four-month winning streak in gold began was in October of 2008, which was also the beginning of a bull run which saw the safe haven metal move from $680 to over $1925 in just three years.

Meanwhile, the short-term overbought GDX continued its climb towards strong resistance at $23, even after gold began to reverse. This glaring divergence has not taken place since the global miner ETF began to sell off from the $23 level back in July of 2018. I consider this to be a very important event and expect to see the undervalued miners continue to lead the gold price this year. The GDX/GLD ratio began to trend higher once GDX hit what I believe to be a final low just above $17 in September 2018 and has accelerated its rise once gold began trading above $1300 this week.

Gold stocks remain undervalued in relation to $1300 gold and have yet to be purchased by most fund managers and high net-worth investors. With the gold price making a monthly close above this important psychological level, I believe gold stocks are about to begin a much stronger move to the upside as the demand base widens into this tiny sector. We have already seen two high-profile global miner M&A deals, which tend to happen during major bottoms in the gold complex. These significant mergers could also begin a chain of further deals.

When looking at the Gold/SPX ratio, gold’s relative strength versus equities since late last year also presents a bullish case for gold stocks, as fund managers typically look at this variable when considering whether or not to invest in gold miners. This ratio has been trending above its rising 50-day moving average after establishing a 4-month pattern of higher highs and higher lows since global equity weakness began last October.

However, many of the gold stock juniors continue to trade at depressed levels and are poised to play catch-up with the miners and royalty firms. Historically, when significant bottoms are being constructed in the gold complex, it is the lower sector risk global miners and royalty company’s which are bid higher at first. Then, once the market is convinced a bull move has begun, the junior developers and early stage explorers begin to play catch-up very quickly.

Nevertheless, we still need more in the way of confirmation that this is indeed the beginning of the next bull market in the precious metals sector. The level to look for in the GDX for a technical major bottom to be in place is a weekly close above long-term resistance at $25. In gold, once we see a monthly close above $1362, a technical 5-year bottom will be confirmed. I strongly recommend having your junior gold stock portfolio completed before we see these major technical achievements take place. Since these are both huge basing patterns, we will see explosive upside moves once they are completed.

At the recently concluded Vancouver Resource Investment Conference (VRIC), I gave a presentation on how to successfully build and maintain a junior gold stock portfolio, which you can access here. I feel the best value, which also offers the most upside potential in the gold complex, are these three sub-sectors:

  • Growth Oriented Producers (GOP’s) with a Sub-$500M market-cap.

  • Developer/Explorers who are proving up large, high-margin deposits with a Sub-$200M market cap

  • Early Stage Sub-$50M market cap Explorers who are cashed up for the year and maintain tight share structures.

Although there are a few juniors which meet these criteria already trading at multi-year highs, there are many still yet to be bid up by the market. Once the junior sector begins to take off in earnest, it will not be necessary to chase them higher if you are able to accumulate the best issues before they begin to rise quickly. 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.