Gold Bulls Whipsawed
InWednesday’s highly anticipated FOMC meeting speech, the Federal Reserve took aslightly more hawkish policy tone in signaling two more rate hikes by year-end.However, the gold complex chose to focus on the Fed’s rather tepid view ofinflation as Fed Chair Jerome Powell pledged to keep rates low enough tobolster the economy for “some time” and signaled it would tolerate above-targetinflation at least through 2020. Despite policy-makers projecting two more rateincreases by the end of this year, compared to one previously, gold remainedfirmly above $1300 by Wednesday’s close.
Next up onthe central bank calendar the following day was the European Central Bank (ECB)meeting, which was held in Riga, Latvia. After the conclusion of the meeting, ECBPresident Mario Draghi proclaimed the opposite of U.S. monetary policy strategywhen he stated there will be no move on rates at least through the summer of2019. Draghi also specified the quantitative easing (QE) program will stop atthe end of the year. After his statement was completed, safe haven capital rushedinto both gold and the U.S dollar as the euro sank nearly 2% on the day.
Sincemid-April, the stubbornly strong world’s reserve currency had been keeping thetechnically oversold gold price from launching a rally. However, yesterday’ssurprising strength in bullion along with the surging dollar gave new hope for the gold bulls. But a stunning reversal thismorning has gold speeding towards support at $1280. The gold price back-testedits 200-day moving average around $1308 yesterday and the sharp reversal fromthis important technical line does not bode well for the short term. In orderto remain near-term bullish, the gold price needs to hold the $1280 region orwe could see a quick trip to the $1260 area soon.
The GDX hascontinued to hug its higher trending 50 day moving average for the past month andbeen trading between $21-$23 since early February with historically lowtrade-weighted volume. As mentioned in last week’s column, the global miner ETF has beensetting up for a near-term break in either direction for the past few months andbeen trending higher since it bottomed on February 9th. Nevertheless,if this sudden reversal in gold does indeed break $1280, the low in the GDX justbelow $21 could be tested soon.
Most areassuming yet another typical “summer doldrums” scenario for the juniors as wehead into the normally slow months of July and August. It is my contention thatthe normally slow summer period in the sector began earlier this year while manyjuniors have already reached sold out levels and are beginning to formsignificant lows. Historically, after the miners have made a significantbottom, the juniors tend to lag before joining the rally.
Recently,there have been many quality junior resource stocks being sold by impatientinvestors, creating opportunities for speculators with cash and patience. Ittakes a lot of time and effort to find these opportunities and it is best to beon the hunt for them when the gold space is out of favor. When this sectorturns, the stock prices in the quality issues move up quickly, so if yourequire assistance in choosing the best quality juniors to invest, please stopby my website and check out the subscription service at http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
Follow @KitcoNewsNOW
newsfeedback@kitco.comwww.juniorminerjunky.com 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.