How to Be Ready for Higher (or Lower) Gold Prices

Written by Gerardo Del Real
Posted May 18, 2016

U.S. housing starts rose 6.6% in April — they were expected to come in at 4.6% — to a seasonally adjusted annual rate of 1.172 million units, the Commerce Department said Tuesday May 17.

The U.S. April consumer price index came in at up 0.4% — the highest since February of 2013 when it was up 0.6%. The figure was expected to be up 0.3%, and up 0.2% excluding food and energy.

Manufacturing in April was stronger than expected. There was also a 0.3% gain in output at factories, which followed a 0.3% decrease the prior month, a Federal Reserve report showed Tuesday.

Total industrial production, which also includes mines and utilities, climbed a larger-than-forecast 0.7%, boosted by the strongest advance in electricity demand in more than nine years.

For the past two months utility output had decreased, but did an about-face and was up 5.8%

Oil has rallied and is flirting with $50.00 a barrel.

Why does any of this matter to those of us that speculate in the junior resource market?

Because if the Federal Reserve is looking for data — and the decisions Janet Yellen makes are always data-dependent (as she so often reminds us) — to support a credibility-saving, normalization of interest rates in the form of another 0.25% hike... This data would be supportive of a small hike that wouldn’t be meaningful to us, other than in the context of other global events that could trigger another rise in the dollar and weaken metals prices temporarily.

A dollar rise in the short term would be negative for metals prices and the juniors we speculate in, especially in light of the fact that we would be dead smack in the middle of the summer doldrums.

This line of reasoning is why I’ve called this year’s rally “the last fake rally in gold.”

So what should we be watching? First up, Japan. 

The world’s third-largest economy has several potential market-moving events this month that could move currencies — and metals — in a significant way.

Remember it was only last month that Bank of Japan (BOJ) inaction led to 3% swings overnight in the Yen and a surge in gold and silver prices.

30-Day Gold PriceFast-forward a month later and the BOJ is once again in position to move the markets.

On the table is a decision on a consumption tax hike scheduled for April 2017.

There’s also an expectation that Japan will unveil new details of fiscal policies meant to stimulate inflation and weaken the yen (If you fail the first two decades, try again!)

And lastly, Japan will play host to the Group of Seven (G7) Leaders' Summit later this month.

Additional stimulus financed by the BOJ would likely send capital back into the dollar, weaken metals prices, and put pressure on the equities with leverage to metals, especially gold and silver.

Next up is the potential Brexit via the UK's June 23 referendum. I’ve talked about Brexit before so I won’t go into a lot of detail.

FXStreet recently reported that some analysts suggest that even a 25% chance of Brexit suggests the British Pound (GBP) could trade some 3%-4% weaker before the UK's June 23 referendum on EU membership.

Currently, opinion polls are not far from 50/50 among decided voters. I don’t believe the UK will leave, but regardless of whether it does or not, you can count on volatility leading up to the vote.

The Coming Gold Bull Market

In my opinion, the Fed has received data that could provide a path to another small hike. I don’t believe the Fed will hike in June because of the Brexit vote and the volatility that will accompany it.

However, if the UK does not vote to leave, it will open the door for a July hike that to me doesn’t just seem possible but probable.

A weaker yen, stronger dollar, and a July hike will affect gold and silver negatively in the short term.

Let me be clear in my strong belief that eventually Japan’s policies will fail, as will Europe’s, and one day — years from now — we might find ourselves in a similar situation.

Small amounts of the capital fleeing Japan and Europe will find their way to gold, but those small amounts will make a big difference.

The coming gold bull market, in my opinion, will be one of the most spectacular ones many of us will ever see.

I plan on being able to take full advantage of it and look forward to bringing you great ways to play that gold bull market through Resource Stock Digest Premium

The first issue — which will be mailed out on May 25 — will feature several companies that have multiple potential catalysts, in the near and mid term, regardless of what happens over the summer. 

If you'd like to become a charter member of Resource Stock digest Premium... membership is now open and you can click here to join. If you'd rather be notified when we hold our formal kick-off event, click here to get on the list. 

If we do see a gold pullback over the summer, make sure the positions you hold have potential catalysts. If positions you hold raised money two or three months ago, it may be worthwhile to ask yourself how many shares will become free-trading and when.

Call the company and ask them what their plans are over the summer and if they don’t have any, and you’re sitting on significant gains, maybe take some off the table.

Taking profits is oftentimes the hardest thing to do, even for the smartest and most experienced of speculators and investors.

It’s cliché but it’s true, you will never go broke taking a profit.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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