Are You A Contrarian, Or A Victim?
These arethe words of Rick Rule, who is one of the most successful resource stockspeculators of our time. Mr. Rule’s famous quote is being put to the test whilewe approach yet another gold sensitive Federal Reserve Open Market Committee(FOMC) meeting next week. The markets reaction to the statement, which will begiven by Fed Chairman Jerome Powell at the conclusion of the meeting on June 13,could possibly have huge implications for the sector heading into the summer.
Meanwhile, themood in the junior resource complex is nearing “contrarians dream” status assentiment indicators suggest a valid low happening soon. Not only has theretail speculators collective outlook become uber-bearish, one of the mostrespected newsletter writers in the complex has stated we are now in a goldbear market. At the Metal Investors Forum (MIF) in Vancouver last month, juniorminer analyst John Kaiser began his opening remarks with this statement regarding thegold sector: "We are back in a bear market and my own feeling is it is notclear what is going to take us out of the bear market any time soon".
While itseems as though this may be the case with most of the stocks in the juniorcomplex who control sub-standard projects, I disagree with this broad statement.Although this has been a very frustrating and difficult stock pickers marketfor the past two years, there continues to be many individual success storieswhich are trending higher. I own shares in a handful of quality juniors thatare trading at, or near, multi-year highs.
However, theappetite for physical gold has been weakening among retail investors overall. Lastmonth saw the fewest Google searches to “buy gold” since July 2007,which was the eve of the global financial crisis. Furthermore, the SPDR GoldTrust GLD contracted 4% across May, erasing the previous two months ofshare issuance growth with the heaviest 1-month outflow since August of lastyear.
The rising U.S.equity market has kept gold below $1300 this week, despite a weakening dollarwhich is coming off a 6% move higher over the past six weeks. The recentlyfalling greenback has also been giving a boost to oil, silver, and copper, yetgold has not benefited from its recent weakness with the buying in large capequites fueling the appetite for risk.
Meanwhile,the GDX has now reached the lowest ever weekly Bollinger bandwidth in itshistory, which is setting up a large move very soon. The major miner ETF has continuedto trade in a very tight range, which is a sign of an accumulation of energythat will be released once the market presents a catalyst for a move in eitherdirection. The committee results of the FOMC meeting next Wednesday couldeasily provide such a catalyst.
The Fed willlikely raise its target interest rate to above the rate of inflation for thefirst time in a decade next week, which could spark debate among the committeeon when to stop. Because of this wrinkle, both investors and institutional algorithmictrades will be hanging on the verbiage of the speech. There is a goodpossibility the fallout from the reaction regarding Fed policy will eithercreate the impetus for a final washout down to a re-test of the Feb 9th low inthe GDX just below $21, or contribute to the uptrend which began on that dayand send it towards strong resistance at $25.
While readingabout all of this rampant bearishness, it is hard to believe the gold price isless than $90 away from a multi-year breakout. For the past few weeks, I havebeen witnessing capitulation in many of the junior resource stocks I follow andhave also been noticing volume dry up in many of the quality miners which appearto have run out of sellers. This sector is presenting an opportunity tocontrarians with both cash and the nerve to buy an ugly chart of various carefullyselected quality juniors. These are the first two requirements for being asuccessful resource stock speculator.
Thiscontinued lack of interest in gold stocks presents an opportunity to researchyour favorite juniors for desired entry points and if you require assistance inchoosing the best quality juniors to invest, please stop by my website andcheck out the subscription service at http://juniorminerjunky.com/
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.