Today is a tough day to be a precious metals and mining share investor. Gold has broken below important support at $1,200/oz and bearish sentiment is palpable.
The fact is that the macro backdrop has suddenly turned against gold in the matter of a couple of weeks. In no particular order:
- Inflation expectations have risen
- Bond yields have soared
- The market has never been more certain of a Fed rate hike
- The US dollar has gathered what feels like an insatiable bid
- Suddenly there is a great deal of optimism surrounding the US economy
In fact, the current dynamic is virtually the polar opposite of the conditions earlier this year (February/March when Fed rate hikes got pushed out further and global yields began to move deeper into negative territory) which had gold cross back above $1,200.
Gold (Daily)
For now precious metals face headwinds which have investors falling over one another to sell gold, silver, and mining shares. However, this is what markets do; a slight shift in the perception of what is occurring creates seismic shifts in sentiment which generates herd behavior among market participants.
I contend that Trump is probably one of the best things to ever happen for gold, however, in the short term the market has it another way. It is this gap between the current perception and what could transpire in the future that creates investment opportunity. Precious metal investors have the opportunity to buy metals and mining shares cheaper today than yesterday, that is a good thing if you are an investor with a long term time horizon.
Given the extent of the technical damage it would be foolish to think that gold will bottom on a dime and suddenly turn higher. Of course it’s possible, it’s just not likely. Instead, it is much more likely that gold and mining shares will have to spend a couple of months in a bottoming process before a sustainable bottom is in place; the bearish sentiment which is so palpable today is fertile soil from which this bottoming process can begin.
The fact that we are approaching the end of the year and tax loss selling is likely to only further exacerbate some of the losses in mining shares makes the next few weeks an opportune time for long term investors to accumulate positions in the precious metals and mining sector. Meanwhile, shorter term traders who have good timing are also likely to benefit from trading opportunities which could arise as January & February are historically two of the strongest months of the year (in fact the last two years the gold miners have posted an average January/February gain of more than 28%) and the January Effect can be particularly pronounced in the smaller, more volatile junior mining sector.
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DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.