Despite signs that the U.S. economy is still strong and the U.S Dollar Index rising 3.6% from a 2-year low struck in late September, Gold Futures closed above $2700 on Thursday and is now up over 30% on the year.
Following a healthy $80 correction last week to work off a short-term overbought situation, the safe-haven metal posted its 38th daily all-time high close since March. The gold price remains overbought technically long-term (basis Stochastics and RSI), and could see a healthier correction at any time.
Yet, dips are being bought quickly as falling real rates, central bank purchases, political divisions, and out-of-control sovereign debt has bullion moving toward its initial 13-year cup & handle breakout target of $3000 per ounce possibly by Q1 2025.
The European Central Bank (ECB) met Thursday and announced a 25 basis-point cut to its main interest rate, picking up the pace of cuts after the Federal Reserve surprised the market by reducing borrowing costs last month by 50 basis-points.
The ECB started cutting rates in June, three months earlier than the Fed, and had already delivered two reductions before this week’s decision. Traders raised their bets on quick-fire ECB rate cuts Thursday, taking the central bank's first consecutive rate cut in 13 years as a green light from policymakers that a speedier easing cycle has begun.
The gold price held its overseas gains on the ECB rate cut news that was expected by the marketplace, while the USDX moved higher into a stiff band of resistance from 103 to 104 after testing critical support at 100 in late September.
Both gold and the U.S. dollar have been experiencing strong safe-haven demand as the marketplace remains anxious regarding how Israel will respond, militarily, to Iran’s missile barrage against Israel earlier this month.
Gold volatility increased Thursday morning after a heavy slate of positive U.S. economic data, highlighted by strong retail sales, an improved weekly jobless claims report, and the Philadelphia Federal Reserve's manufacturing sector survey moving higher into positive territory this month.
Yet, gold weakness was quickly bought with willing safe-haven bids taking December Gold to a fresh all-time high above $2700 into the Comex close, while the data is also unlikely to change the trajectory of the Fed’s further easing of monetary policy into year-end.
A new era of global monetary policy easing is underway in the world's largest economies, as central banks continue to cut interest rates on increased concerns about the risk of economic downturn and/or recession.
After the recent better-than-expected U.S. jobs report, the prevailing sentiment is for a soft landing and the U.S. economy has been the strongest in the G7. But as the S&P 500 continues to climb higher on the back of a dovish Fed, the latest University of Michigan Sentiment Index released last Friday showed Americans becoming more pessimistic as political division has increased during a chaotic U.S. election less than three weeks away.
In the meantime, public debt levels around the world are even worse than current projections, and the measures being undertaken by governments won't be enough, according to economists at the International Monetary Fund (IMF) this week. “Global public debt is very high,” wrote Era Dabla-Norris, Davide Furceri, Raphael Lam, and Jeta Menkulasi in an Oct. 15 IMF blog post.
“It is expected to exceed $100 trillion, or about 93 percent of global gross domestic product by the end of this year and will approach 100 percent of GDP by 2030. They pointed out that this is 10 percentage points of GDP above the 2019 level, “that is, before the pandemic.”
As central banks continue to walk a fine line between juicing up economic growth and keeping inflation under control to prevent stagflation, global geopolitical tensions seem to increase by the day amid deteriorating economic conditions.
This includes major conflicts in Ukraine vs Russia, the growing threat of Russia vs NATO, Israel vs Palestine, Israel & the U.S. vs Iran, North Korea vs South Korea, and now China threatening Taiwan, among others.
China's military vowed to take further action against Taiwan if needed after staging a day of war games on Monday it said were a warning to "separatist acts" and which drew condemnation from the Taiwanese and U.S. governments. Democratically governed Taiwan had been bracing for more war games since last week's national day speech by President Lai Ching-te.
While it is too early to say World War III has arrived, we are clearly a world at war while shifting away from globalization. And gold continuing to trade at all-time highs in all major currencies is telling us it is possible that regional conflicts could morph into something larger.
After Russia was removed from the SWIFT international currency system on March 1, 2022, BRICS central banks boosting gold reserves at a record pace is a sign that they are gearing up for a global monetary reset.
Russia is seeking to convince BRICS countries to build an alternative platform for international payments that would be immune to Western sanctions when it hosts the BRICS summit next week. The October 22-24 summit in the city of Kazan is being presented by Moscow as evidence that Western efforts to isolate Russia have failed.
Meanwhile, in anticipation of a third consecutive stellar earnings season that begins next week, gold stock ETFs are attempting to breakout from key multi-year resistance levels.
After a false breakdown last Thursday from 4-week consolidation flagging patterns of early September gains, GDX has moved above previously stiff 4-year resistance at $40, while GDXJ is rising above 3-year resistance at $49.
Last week’s bullish reversal in the miners from a false breakdown supports an immediate breakout to fresh highs. If gold hits its $3000 technical cup & handle breakout target by Q1 2025, as expected, GDX could see $50 and GDXJ may run to $60 after building a strong 4-week floor at former multi-year resistance levels of $40 and $49, respectively.
As both gold and silver continue to rise, miners feel increased pressure to add more ounces via takeovers of undervalued late-stage juniors and small-cap producers. Record-breaking metals prices have been fueling increased mergers, acquisitions, and expansions since mid-August.
This current wave of M&A began when global miner Gold Field’s (GFI) announced that it is buying Canada’s Osisko Mining (OSK.TO) in a deal valued at US$1.6 billion.
The all-cash offer was followed a few weeks later by major silver miner First Majestic Silver (AG) announcing that it is buying fellow Canadian junior explorer and developer Gatos Silver (GATO) in an all-share transaction valued at US$970 million.
On September 10, AngloGold Ashanti (AU) announced buying Egypt-focused smaller rival Centamin in a US$2.5 billion stock and cash deal that would see the South African gold miner become the world’s fourth largest producer of the precious metal.
After the October 4 announcement that major silver miner Coeur Mining (CDE) has reached an agreement to acquire Canadian precious metals junior producer Silvercrest (SILV) in an all-share deal valued at $1.7 billion, mining sector investors are now wondering which late-stage PM junior developer and/or junior GOP is to be acquired next.
With both GDX and GDXJ moving above multi-year resistance levels at $40 and $49, respectively, we should see more lagging quality juniors begin catching up to the miners once this key technical miner ceiling becomes a floor.
In anticipation of the mining sector breaking out above multi-year resistance, the Junior Miner Junky (JMJ) real-money portfolio has accumulated large positions in a basket of quality small-cap junior take-over candidates with plenty of leverage to the gold and silver price. Some have already risen sharply with the mining sector, while others with optionality leverage have yet to breakout from strong accumulative bases.
The JMJ newsletter maintains a high net-worth real money portfolio and is completely transparent, which assists in teaching its members how to carefully 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.
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