The Federal Reserve is going to meet this week and raise interest rates. The last time they did that in June gold prices ended up fading and then dumping in July. Emerging markets also did the same with Turkey blowing up in August and Argentina following.
What is gold going to do after this Fed meeting?
I think the odds are that emerging markets and gold will end up fading after this meeting or in October again, but gold and silver are in an interesting situation right now where things are not dire like they were in 2014 and 2015.
Now I know that the gold commercials are actually net long a bit in the commitment of traders report and that is causing some to predict a big gold rally. Others use Elliot Wave counts to say the bottom is in and after the Fed meeting gold will surge for the rest of the year.
But I’m not that optimistic and believe that the trend is going to remain sideways to down for gold and mining stocks most likely until after the Fed meeting in December. Fed Fund futures show an 80% chance of another rate hike in December so that will worry people. And if things remain the way they are you’ll see some tax loss selling in the gold complex to push things down going into the final weeks of the year too. But key rallies in gold began in 2016 and 2015 after those December FOMC meetings as tax loss selling came to an end.
As for the idea that the commercials being net long means gold must rally they were net long at times in 2001 that didn’t lead to a big gold rally then. And we have seen net long commercial positions in many of the individual agriculture commodities during the past three years and they have continued to decline anyway.
The truth is that opinions are opinions and predictions aren’t much better.
When gold fell through $1,240 this past August it went through a year long support level. It is now trading below its 150 and 200-day moving averages and those moving averages are now going to act as key resistance. On the chart it looks like all gold has done since going through $1,180 is bounce.
That bounce is likely to end soon and bring with it a test of those August lows. If gold were to rally through $1,220 that would suggest a move up into the $1,240 – $1,275 area and then more sideways action to come.
The key is that either way it is going to take time before gold goes through its 150 and 200-day moving averages and therefore we must assume that we are in an overall sideways to down trend that will end in time, but not today.
Things are happening though in the gold industry.
Now another thing interesting that has happened in the past six weeks is the emergence of several explosive moves in small cap mining stocks that you would not see in a big bear market.
For instance take a look at this chart of exploration stock Royal Nickel.
On September the 10th this exploration company discovered a boulder that had 9,000 ounce of gold on it worth $15 million. The discovery suggests a big minable deposit and has generated excitement throughout the mining industry.
Press reports are saying that this is the biggest potential discovery in decades. According to the Toronto Financial Post:
The Australian news channel ABC reported that the miners were working underground, at around 500 meters below surface, in the Kambalda district.
Henry Dole, the miner credited with finding the gold, said “Never in my life have I seen anything like this. There were chunks of gold in the face, on the ground, truly unique I reckon,” according to the ABC news report.
I point this out to you not as a suggestion to buy the stock, but to realize that excitement like this can spread to other exploration junior mining stocks. In the mid 1990’s there was a big bull market in small cap explorations stocks like this despite a rather sanguine time for gold prices themselves.
And a stock I own warrants in also soared this month on news. I bought a private placement in Wallbridge two years ago that had warrants attached to them. Dave Skarica and some private group members bought too. I sold my initial shares awhile ago, but I still have the warrants and the stock is soaring.
What generated the Wallbridge rally was that giant mining industry leader Sprott was making a strategic investment and news of positive drill results.
However, like the price of gold, the HUI gold stock index and most big cap miners such as NEM are now trading below their 150 and 200-day moving averages and I see no real evidence that they have put in a final bottom. Bounces are one thing, but I just think its going to take time for them to rally for real after their August drop.
I want to argue that instead of seeing a giant rally directly ahead or a giant crash coming we should look at the mining stocks and gold as in a similar position as they were back in 2000 and 2001 when gold commercials were last net long and it didn’t really matter.
Back in the Fall of 2000 gold and gold stocks put on a big bottom and then went up and down in a big range with resistance on gold at $300 an ounce just as the $1,300 – $1,360 area has been resistance in the past two years. At times in 2001 gold made a new low and the mining stocks didn’t as you can see in this chart.
That seeming 2001 sideways malaise in gold led to a brand new explosive bull market in 2002 that lasted until 2008. That bull market began when the dollar rolled over into a new bear market in 2002. That malaise period was a good time to invest in private placements in the small cap gold companies and I plan on doing that again at the end of this year or start of next year.
But right now I’m just watching the action carefully week by week. My opinion can change later, but the way things stand now I expect we’ll see this the sideways to down action reassert itself in precious metals and mining stocks to bring a more meaningful bottom in after the December FOMC meeting.
Because Wallbridge is a small cap stock with a market cap of less than $75 million I will not buy or sell a share of stock in it within 30-days of this post.
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