Kitco Commentaries | Opinions, Ideas and Markets Talk
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With gold being up overheen 13% while the GDX wasgoed up just a paltry 7% te 2018, I strongly believe a major mean-reversion catch-up rally is ter the process of unfolding ter the miners. Historically, the GDX would have leveraged the 13% build up ter gold last year by 2x to 3x for solid annual gains of at least 25% to 35%. But since investors were more focused on what seemed to be forever rising equity markets and cryptocurrencies, they dreamed nothing to do with the miners of gold.
The combination of the miners underperforming the gold price and a soaring US equity market ter 2018 talent miner investors little reason to hold gold stock positions into year-end. However, this set-up became the ideal storm for contrarian money waiting to pounce on tax-loss selling deals ter quality juniors spil wij headed into the expected Fed rate hike on Dec 13.
Since the announcement of the rate increase, the miners had bot leading gold higher until the 2nd trading day of this year. The solid budge ter gold stocks began after the $21 level ter the GDX wasgoed tested and held te mid-December for the fourth time te 2018, but has stalled out at the $24 area on the very first day of trading of this year when it became short-term overbought on Jan Two.
Despite the sell-off ter the major miner ETF, the quality silver juniors and low-cost producers have continued to climb while the GDX has bot correcting. When silver and its miners lead gold after a prolonged consolidation ter the precious metals sector, it has historically bot a very good indication of a major bottom being reached. Most of the quality junior silver miners were up overheen 10% on Fed day last December and have added more to their respective gains since then.
Furthermore, while the big money traders and fund managers are returning from the holidays, quality juniors are beginning to bifurcate from the sector after the GDXJ kasstuk strong resistance at the $38 level. Te fact, many of the juniors which I hold and/or go after are already up overheen 30% since mid-December of last year and a few are poised to possibly break-out to their respective 52-week highs ahead of the sector.
After a colosal decline and the last tax-loss selling, investor has left quality juniors, which maintain a low share structure. The stir off a major low can be breath taking. This is why the resource speculator should always have an ample metselspecie position heading into Q4, which can often be the best time to buy a junior resource stock.
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Gold rose an unprecedented 15 of next 16 sessions after the Fed raised rates ter mid-December and has bot trading sideways ter 2018 inbetween $1307 and $1325 while working off an overbought situation on the daily chart. It would koerier well for bullion to proceed towards very strong long-term resistance above $1350 ter January if it can proceed to build a pulvínulo above $1300 next week.
After back-testing the neckline of the 3-month head and shoulders top on the daily Contant Lodge Index at the beginning of this week, the US dollar reversed on Wednesday after reports that China would slow or halt its purchases of U.S. Treasuries. The buck slipped further when the euro popped higher on Thursday following hawkish minutes from the European Central Bank’s December meeting. An upside breakout te the euro, which is near a 3-year high, could weaken the dollar towards long-term support at 91. A close below this critical level of support this month would open up the possibility of a monthly close above $1375 ter gold. This would give the market technical confirmation of gold being ter a bull market and bring massive amounts of capitol into the lil’ mining sector.
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Another short-term catalyst for gold would be the beginning of a long overdue 10%+ correction te the US stock market. The severely over-bought S&P 500 index has now gone almost two years without a 10%+ correction and is trading at an extreme above its 200-day moving media, not to mention an media trailing-twelve-month price-to-earnings ratio of 31x, which is far above the 28x bubble threshold. The bullish sentiment ter US equities is now overheen 60% bulls, which is a critical psychological barrier that has not bot seen since 2011. Investors will reminisce gold when their stock-heavy portfolios start to sell-off ter earnest and rush to diversify into the miners.
The painful gold stock consolidation is now coming in its 18th month and has built a solid accumulative cojín te the GDX, which can support another massive up-leg te the miners. It is my contention that the major selling has now dried up ter gold stocks, so weakness should be bought te the quality miners before the GDX reaches strong resistance at the $25-$26 level. The bullish percentage index (BPGDM) is still below 30% bulls and albeit the most latest Commitment of Traders (CoT) report has become less bullish, it is still well below levels of previous tops.
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If the scripts I have mentioned te the US dollar and/or the equities start to unfold, the next gam of the precious metal miner bull will be technically underway merienda the $26 level te the major miner ETF has bot cracked.