Contributed Commentaries
The PDAC Smack in Gold and More Global Stimulus
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Each year, during the first week of March, investors, analysts, mining executives, prospectors, geologists, government officials, and students from 135 countries descend upon the Metro Toronto Convention Centre to attend the world’s largest mining convention. Prospectors & Developers Association of Canada (PDAC) is the world’s premier mineral exploration and mining event, which is packed into four days of round the clock networking and attended by a cornucopia of who’s who in the mining biz.
This year, the Metals Investor Forum out of Vancouver decided to overlap their last day of attendance in Toronto with the first day of PDAC, which made for a more subdued crowd on the first day. The lack of attendance on Sunday was also due to the organizers of PDAC deciding to charge a small fee to attend the Exhibit Hall for the first time. Oh, and gold recently failing to break the $1375 level for fourth time trying over the past three years may have had something to do with the poor attendance as well.
However, the most conversational occurrence which took place on Sunday was the glaring non-presence of global mining giant Barrick Gold Corp (GOLD). Company employees began to set up its large space, only to stop mid-build and leave a huge 3-booth space mostly empty during the entire conference. The plot thickens as this bizarre global miner triangle saga continues and a resolution is expected soon.
Last Friday, we had the now infamous “PDAC Curse” coming a bit early to both Bay and Howe Streets. After slowly stair stepping over 15% higher for nearly five months to strong resistance at the $1350 level, the gold price decided to take the elevator down to strong support at $1280 in less than two weeks. This is an area of support which was tested multiple times in January before gold’s final push towards the resistance zone at $1350 on February 20th. As suggested as a possibility last week in this column, an orderly decline thus far has taken the GDX down to good support at the $21.50 level.
The very disappointing Non-Farms Payroll (NFP) report issued this morning has furthered the bounce up to the psychologically important $1300 level, while placing further doubt of another interest rate hike this year by the Fed. The pace of hiring in the U.S. slowed sharply in February as the economy added just 20,000 new jobs, marking this the smallest increase in 17 months and well below the forecasted 172,000.
The 12-month rate of hourly wage gains climbed to 3.4% from 3.2%, the largest increase since April 2009, showing inflation picking up in this important Fed rate hike decision statistic. This is the last NFP report before the next FOMC meeting on March 19-20th, where the Fed will give the market more clues about its market influencing interest rate policy.
Meanwhile, the ECB’s decision to continue Quantitative Easing stimulus yesterday came a day after the Bank of Canada also reduced its outlook and policy of tightening. These events have gold beginning to breakout in Euros and Canadian Dollar gold keeps inching its way towards all-time highs. The ECB has destroyed its bond markets and more stimulus is continuing life support for Eurozone governments who may not be able to sell their debt to the free market at these absurdly low rate levels.
Moreover, Bank of Japan board member Yutaka Harada said on Wednesday the central bank must ramp up stimulus without delay if risks to the economy threaten achievement of its inflation target. This statement has added more fuel to gold in Japanese Yen zooming towards all-time highs as well.
Furthermore, a reading of the Chinese economic data since the beginning of the year suggests that broad monetary stimulus is rearing its head once again, potentially bringing deleveraging objectives under a great deal of duress and China’s policymakers have already been gradually loosening the liquidity valves since 2018. Data released by China’s National Bureau of Statistics reveal that manufacturing activity contracted for the third consecutive month in February 2019, with the Purchasing Managers’ Index (PMI) falling below analyst expectations. While Chinese leaders are still conveying the message that monetary stimulus will be restrained in 2019, this is likely being done to prevent a loss of confidence and discourage capital flight.
Although continued global stimulus has the U.S dollar trading in a region not seen since June of 2017, the nearly 1% move higher yesterday was not able to penetrate the support level of $1280 in gold. The U.S. equity market is beginning to roll over and together with gold’s global safe-haven component has kept this recent decline from steamrolling towards critical support at the $1250 thus far.
Gold remaining firm, while the U.S. dollar is breaking out because of global monetary destruction, is telling us that both bullion and the worlds reserve currency are slowly becoming the safe-haven choice of investors. Gold rising with the U.S. dollar consistently will be a sign of a shift in sentiment as people begin to question the competency of global central banks and governments. This could be the catalyst which finally gives us a monthly gold close above $1362, sending the safe haven metal into a new bull market.
Based on these issues, continuing to concentrate on accumulation of the best in breed juniors during this correction is recommended. While the GDX is consolidating its recent gains, deep value opportunities remain in the sub-$500M market cap growth-oriented producers, high-margin project developer/explorers, and cashed-up, early stage micro-cap juniors. 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/
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