Make Kitco Your Homepage

In-person conference season returns as gold builds an $1800 floor

Commentaries & Views

Investors now seem convinced that the Fed will wait for a longer period before deciding to roll back its massive pandemic-era stimulus program. These speculations were further fueled by Wednesday's disappointing ADP report, along with the significant miss in the August U.S. Non-Farm Payrolls report issued this morning.

The combined disappointing data has raised doubts about the U.S. labor market recovery and further dampened prospects for an early Fed tapering of its massive $120B per month stimulus program (QE), which is evident from a softer tone surrounding the U.S. Treasury bond yields. The news is also keeping U.S. dollar bulls on the defensive as the greenback is trading near one-month lows that is lending support to the gold price.

With Gold Futures attempting to re-establish itself above the key $1,800 level following last week's dovish stance from the Federal Reserve's chair, Jerome Powell, the safe-haven metal is moving upwards towards stiff resistance at $1835 on the back of substantially fewer jobs were created in August.

The news has traders suspecting that the rising U.S. COVID-19 cases in recent weeks will stall the U.S. economic recovery, after all, keeping the Federal Reserve from pulling back on its massive stimulus which is bullish for the gold price.

The gold sector had otherwise been building positions around a hawkish narrative that, in hindsight, was too premature given the fact that the U.S. labor market is not as robust as first thought. On balance, Chair Powell said that while the Fed has probably got to the point where "substantial further progress" has been made on inflation "we have much ground to cover to reach maximum employment" during his Jackson Hole speech last week.

Powell also explained in his Jackson Hole speech that an "ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired". In an environment of "substantial" labor market slack, this could be "particularly harmful".

Moreover, the Fed is severely constrained in how much the world's largest central bank can raise interest rates, to quell rising inflation, due to ballooning an out-of-control U.S. debt. While the Fed has in one year doubled its balance sheet to around $8.3 trillion, the current national debt is now $28.7 trillion and rising, while the current debt to GDP ratio is 125.7%. And this does not include the $1 trillion infrastructure bill before the House, nor the $3.5 trillion anti-poverty and climate plan currently being voted on by U. S. lawmakers.

Meanwhile, the gold mining complex is attempting to carve out a substantial bottom as the summer doldrums wind down into the U.S. Labor Day weekend. After possibly printing a weekly/monthly double just above critical long-term support at the $30 level this week, the GDX is attempting to clear stiff overhead resistance at the $33 level as I type this missive.

Furthermore, the GDXJ may have completed a bear-trap reversal last week, when the junior miner ETF closed back above its critical long-term support line at $41 on a weekly/monthly basis. Once we see a weekly close above $45 in GDXJ, the odds will increase significantly that we have also seen the lows in the junior complex.

Many quality junior issues are also showing signs of carving out significant bottoms, before resource complex fund managers and big money speculators descend upon two in-person precious metals conferences next week. The Beaver Creek Precious Metals Summit, followed by the Denver Gold Forum, is set to begin in Colorado next Tuesday. I am looking forward to catching up with colleagues and friends, while further vetting junior precious metals firms on the JMJ Watch List via 1 on 1 meetings with several management teams.

Historically, M&A has heated up in the sector surrounding the fall conference season in Colorado. The following two weeks will be the first time in 17 months that mining executives will be able to interact in person, while exploring options on how they plan to replace rapidly depleting ounces.

With the precious metals mining complex remaining deeply undervalued in relation to historically overvalued equities, I have been adding to core M&A candidate positions to the Junior Miner Junky (JMJ) real money portfolio since mid-August, while scaling into a few new positions.

The JMJ service maintains a US$1 million real money portfolio and is completely transparent, which assists in teaching its members how to construct and maintain a successful junior resource stock portfolio. Subscribers are provided a carefully thought-out rational for buying individual stocks, as well as an equally calculated exit strategy. JMJ also teaches subscribers how to navigate the high-risk junior resource equity sector by incorporating proper risk management tactics. If you would like to receive my research, newsletter, portfolio, and trade alerts, please click here for instant access.

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.