Gold: The Stock Picker's Era Begins

The FOMC meeting looms ahead, as the main driver of global gold prices, in the short term.  The policy announcement will be made at about 2PM on Wednesday, and most analysts believe Janet Yellen will remove the word “patience” from the Fed’s position on interest rate hikes.

That’s the weekly gold chart.  My analysis suggests gold could trade down to $1095, if the Fed removes the word “patience”, and from there a major tradeable rally would begin.

That’s the monthly CRB commodity index chart.

It’s fairly obvious from that chart that the Fed has failed miserably in its mandate to raise inflation.  The stock market has risen, T-bonds have risen, and houses owned by leveraged hedge funds have risen, but general commodity prices have tumbled.

As a result, numerous institutional money managers are beginning to question the credibility of the Fed.  The Fed’s main mandate, arguably, is to maintain stable inflation in the 2% area.  Janet Yellen may decide that tomorrow is the time to make a bold statement about the Fed’s mandate on inflation.  If she does that, it could ignite an even more powerful gold rally.

That’s the weekly GDX chart.  Note the key bullish position of the 14,3,3 Stochastics series.

Most analysts are very bearish about gold and gold stocks.  Some are trying to predict a “final bottom” and a “new bull market”. That’s the monthly HUI chart.  It’s in a general support area, and I’m not concerned whether the next move is higher or lower.  Here’s why:

I think this is now a stock picker’s market, and the analysts trying to forecast the action of the general precious metals sector higher or lower are making a serious mistake. 

Global gold price discovery is transitioning from the West to the East, but it’s a process that really only began in 2013 in a major way.  I’m predicting that process will continue for another two to three years, before the Eastern love trade asserts anything resembling consistent dominance over the Western fear trade.

Many individual gold stocks have soared in 2015, even while gold has declined from the $1308 area highs, and while the US dollar has soared against other Western fiat. 

Investors who are focused on the individual components of gold stock ETF like GDX, GDXJ, and ZJG.TO, can easily outperform the gold bears by looking at individual company fundamentals and key technical action. 

There are some great gold and silver stock rallies taking place, even as gold declines about $150!  Imagine the rallies in these stocks that can occur, if gold reverses and stages a big rally of its own!

That’s the daily Newmont chart.  After staging a fabulous 50% rally from the $17 area to above $26, a technical non-confirmation appeared on the chart, and I told subscribers to book profits. 

Newmont looks great now, and if Janet Yellen begins to talk about the Fed taking firm action to achieve the elusive 2% inflation target, institutional money managers could surge into the stock!

Simply put, the reason that 2015, 2016, and 2017 will be the year of the stock picker, is because lower gold prices, the dollar rally, and the oil price implosion are separating the gold stock wheat from the chaff.   

Some companies have astronomically high all-in costs of production, while others have very low costs.  Also, miners that have revenues in US dollars and costs in other currencies that are declining, can potentially reap windfall profits, just from the dollar rally.

Maybe the HUI index and GDX have “one more trip down” on the price chart, but do the people running Newmont really care about that?  I don’t think so.  Rather than worrying about the various lower price targets promised for the HUI index by various gold bears, I suggest that proud Newmont shareholders should focus on fundamental and technical developments at Newmont itself. 

Newmont’s CEO came on board in 2013 and got paid about eight million dollars.  I think Newmont shareholders got a bargain.  He looks lean, healthy, and brings the expertise and connections needed to take Newmont shareholders forward, for years to come in what I call… the gold bull era.   

That’s a snapshot of the latest COT report.  The giant commercial traders have an unrivalled track record on the COMEX.  They are probably the most secretive group of traders.  They never make a press announcement, but their professionalism on the “price grid” is unmatched.

To the left of that table, are the non-commercial traders (mainly leveraged hedge funds).  It’s clear that they have been piling on short positions into gold price weakness.  That’s a very dangerous strategy, particularly when the commercial traders are directly on the other side of that trade. 

The funds also appear to have booked losses on almost 8000 long positions, while the commercials (aka the “banksters”) booked enormous profits on more than 6000 short positions.

If the FOMC meeting creates price volatility that moves gold to my $1095 downside target price, it’s almost certain that the commercial traders will be enormous buyers, while the funds book even more losses, and add even more short positions.

My suggestion as this important FOMC moment approaches, is to consider joining the commercial traders.  Buy any price weakness between current levels and $1095, with a focus on individual gold stocks that have solid reserves and low all-in costs of production! 

I’m developing a “Hot Shots” portfolio at my junior stocks website at www.gracelandjuniors.com, to play short term movement in key GDXJ component stocks, using in-house double-smoothed oscillators for timing, and plan to launch it tomorrow morning.

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Special Offer For Gold-Eagle Readers:  Please send me an Email to [email protected] and I’ll send you my free “Gold Stocks Mano A Mano!” report.  I pit five top North American miners against five top Aussie miners, and show my buy and sell signals for all.  Who will come out on top, the “Thunder Down Under”, or “Captain America” in the gold bull era?  That’s the question I intend to answer in this key report!

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