Gold Rally Pauses at the Trump/Modi Highs
After risingfive consecutive weeks, gold has paused at the $1340 level, which is the levelbullion reached just after Donald Trump was declared the 45th Presidentof the United States on November 8th, 2016.
However,this shocking and gold bullish news was immediately “trumped” by India’s PrimeMinister Narendra Modi announcing the confiscation of the country’s largest currencybills. Abolishing the 500 and 1,000rupee notes, worth about $8 and $15, effectively removed over 85 percent of thecurrency in circulation by the end of 2016. With India being the second largestconsumer of bullion, the announcement caused gold to make a strong reversal onhuge volume after rising quickly on the Trump news.
The safe-havencurrency proceeded to decline over $200 during a six-week long losing streakinto the end of 2016. The Modi currency confiscation news was veryinstrumental, along with the black cloud of rising U.S. interest rates, inkeeping gold well below very strong resistance at the $1400 level for anotheryear. After the news, the gold market in India went almost completelyunderground as many people without bank accounts, which is 50% of thepopulation, were afraid of cameras recording their purchases and having to payoutrageous bribes.
Fast forwardto the present, we now have a very weak US dollar which has been pushing thegold price higher, along with just about everything else. The 90 level on theCash Settle Index has been reached, but the buck is short-term over-sold andthe suddenly lagging miner sector could be telegraphing near-term goldweakness.
Gold is now becomingoverbought on daily basis and the miners, beginning to lag the yellow metal, couldbe signaling a short pause in the sector. As mentioned in this column last week, we may need some selling to come intothe extremely over-bought US stock market before we see big money begin to get backinto the mining space.
Nevertheless,there have been strong Q4 financials announced by a few former laggards in theGDX. Namely, Goldcorp (GG) and Yamana (AUY) have announced strong quarters andsector leader Newmont (NEM) is trading at a 52-week high. Strong drill resultsin exploration stage juniors and releases of high-margin project PreliminaryEconomic Assessments (PEA) and Feasibility Studies continue to be rewarded aswell.
Despite thepositive action of a few select juniors and global miners, the GDX beganlagging gold ahead of this pause and is consolidating above support at the $23level. The major miner ETF still needs to clear the $25-$26 area before we canget too excited about the near-term possibility of another leg higher in goldstocks.
Moreover, silverjuniors, which were leading the miners, have now begun to roll over this week justas they were nearing their respective 52-week highs. In the meantime, the now18-month consolidation in gold stocks continues and weakness should be boughtin the quality juniors while the sector remains a stock-pickers market.
I will begiving a presentation entitled “How to Build a Successful Junior Resource StockPortfolio” at the upcoming Vancouver Resource InvestmentConference (VRIC) this Sunday, January 21st. If you plan on attending, please stop byand have a look.
By David ErfleContributing tokitco.com
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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.