Rising Crude Oil Keeps Gold Above Critical Support
Despite therelentless rise of the U.S. dollar during the past four weeks, the gold pricehas managed to hold critical support at the $1300 level due mostly to crude oilcontinuing to rise. The GDX is also trying to close the week above its 200-daymoving average and strong resistance at $23 on the back of a tame U.S.inflation report released on Thursday. The inflation report boosted both goldand U.S. equities by having investors believe the Federal Reserve may not haveto be so aggressive on raising U.S. interest rates, what with low inflationaryexpectations.
Theshort-term overbought U.S. dollar is seeing its first pullback in four weeksand is assisting gold in moving higher above $1300 support after numerousattempts by the bears to run the stops below this critical level. Since goldfailed to breakout yet again last month, there has been a growing list ofanalysts who have warned this selloff could be the beginning of one last plunge to shake out the weak hands. However,the miners have been holding up in the face of gold possibly losing the 13-handlesince late last week.
OnWednesday, Reuters reported, “North American gold-backedexchange traded funds saw inflows in April at the highest since September 2017,as a U.S.-China trade war stand-off, tensions over Syria and worries overpossible U.S. sanctions on Russia ushered in safe-haven purchases. NorthAmerican gold-backed ETFs rose 43.7 tonnes worth $1.9 billion in April, a 3.4percent increase from the month prior, the World Gold Council said onWednesday. European gold-backed ETF holdings increased by 27.1 tonnes worth$1.2 billion during the same period, after two consecutive months of outflows.”
The GDX has continuedto carve out a bottom since the February 9thlow and if we get a strong close today above $23 in the global miner ETF, thenlong-term resistance at $25 will come into view. Even though the majors havebeen firming up since the low in the GDX, many of the more speculative micro-capjunior resource stocks have been unable to catch many bids. The resourcejuniors are no longer the only high-risk, high-reward game in town as theCrypto and Pot sectors have begun to heat up again, drawing more speculativecapital away from the resource sector.
However, theminer M&A space began to heat up again this week as well. On Tuesday, LundinMining Corporation (TSX:LUN) and Euro Sun Mining Inc. (TSX:ESM) announced thatthey have submitted a proposal to NevsunResources Ltd. (TSX:NSU) to acquire all of Nevsun's outstanding common shares for approximatelyC$1.5 billion. The offer was unanimously rejected by the Nevsun’s board statingthe price offered “isn’t good enough.”
Under theterms of the offer dated April 30, Nevsun shareholders were to receive a totalconsideration of C$5 per Nevsun share including C$2 in cash funded by LundinMining, C$2 in shares of Lundin Mining and C$1 in shares of Euro Sun, LundinMining and Euro Sun said in a joint statement.
The Nevsunshare price has continued to climb this week on heavy volume, raising bidding war speculation even though the company has stated it’snot formally for sale. If a bidding war were to take place, it could spark more sector M&A and be a welcome catalyst in the miningspace.
I will be speakingin Vancouver next week at the Cambridge House International MiningInvestment Conference on May 15-16. Please stop by and say hello if you are planning to attend.
By David ErfleContributing tokitco.com
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