10 reasons to be bullish the gold complex in 2022
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
With bearish gold headlines making the rounds as the new year came to a close last week, you would think bullion was down double-digits in 2021. But after gaining a stellar 18% in 2019, then another 24% in 2020, the gold price consolidated those huge gains as much as 20% by Q2/2021 and ended last year down just 3.5%.
The gold price has entered the new year by continuing to whipsaw investors on both sides of the trade. The first week of 2022 began with volatile trading on either side of the key $1800 level until the Federal Reserve minutes from December, released on Wednesday, pulled the rug out from under the bulls.
The gold price was sold down along with the stock market immediately after the minutes revealed that policymakers agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022. Although equity weakness was bought the following Thursday, the gold complex has seen continuous pressure into this morning's U.S. Non-Farm Payrolls (NFP) Report.
Meanwhile, the precious metals mining complex has seen continued broad-based selling into the first week of 2022, showing renewed relative weakness to the gold price. The combination of the S&P500 making seventy all-time highs in 2021, along with delayed assay results creating a news-flow void, has kept the relatively tiny junior mining sector off the radar of most speculators. And the selling has increased into the new year despite the gold price remaining in an uptrend since August of 2021.
Moreover, although we have seen the inflationary result expected from trillions of U.S. dollars being created by the world's largest central bank, the gold price not reacting as expected has kept generalist investors out of the gold complex for the past seventeen months as well.
With most investors ignoring the values being created by apathetic resource stock speculators, while generalist investors remain oblivious to this tiny sector, we are seeing an opportunity similar to when the mining space was carving out a significant bottom in late 2015, and again in late 2018. A 3-year pattern of creating significant bottoms in the mining complex during Q4 of 2015, 2018, and possibly 2021, is clearly evident when studying the monthly chart of precious metal's sector bellwether Barrick Gold (GOLD).
In regards to late 2015, the macro environment six years ago was very similar to the current economic climate in regards to the impending Federal Reserve rate-hike cycle. During a brutal gold bear market from 2012 to 2015, the GDXJ fell over 80%, taking many investors out of the sector and vowing never to return.
Once the selling finally began to subside in the summer, the junior miner ETF began to create a 6-month accumulative flat bottom in late Q3/2015 as the Fed began to jawbone the first rate-hike cycle since the global financial crisis of 2008.
By the time the world's largest central bank officially announced the first 0.25% rate hike in mid-December of 2015, the policy change became a “buy the news” event for the gold price which created a significant bottom at $1045. Although GDXJ continued to trade sideways for another month, by mid-2016 the junior miner ETF had zoomed over 260%, while many select juniors moved up 10x-15x.
On Thursday, St. Louis Fed President James Bullard said the Fed could raise interest rates as soon as March and is now in a "good position" to take even more aggressive steps against inflation, as needed, after a policy reset last month. Therefore, it is reasonable to assume the Fed could very well telegraph the beginning of the impending rate-hike cycle at the next FOMC meeting on January 25-26.
Despite the continued under-performance for gold as we begin the new year, the fundamental backdrop in 2022 for precious metals and related mining share prices continues to strengthen. Below are 10 reasons why I expect the gold price to eventually rise above $2,000 per ounce in 2022, along with the mining sector creating a significant bottom in Q1/2022:
With most resource stock speculators and generalist investors continuing to avoid the precious metals space during the first week of 2022, this is a great time to accumulate a basket of quality juniors de-risking large, high-margin projects with 5x-10x upside potential from current depressed levels.
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