Money Flooding Into Gold

Written by Gerardo Del Real
Posted March 11, 2019

Gold futures recently hit prices not seen since April of 2018. That rally may have been a case of "too fast too soon" and profit-takers quickly stepped in.

We are making higher lows but are not in breakout mode just yet.

The higher base is positive and, as expected, the post-tax-loss selling rebound in the juniors has been solid.

Speculative companies like Gainey Capital, once buried at C$0.04, now trade at three times those levels.

gainey chart

Institutional and retail capital is slowly but surely working its way back into the yellow metal.

Holdings in global gold-backed ETFs rose 72 tonnes in January to reach 2,513 tonnes (80.8m troy ounces), hitting the highest levels in nearly six years, according to data from the World Gold Council (WGC).

In dollar terms, January saw $3.1 billion in net inflows, the fourth consecutive month of net inflows.

M&A is also picking up with the Barrick Gold and Newmont JV announcement.

Newmont has 19 mines adjacent to Barrick’s and the merger is supposed to allow both companies to operate in Nevada as a single entity.

There’s two important factors that also lead me to believe that 2019 is finally the year we see a real breakout in the gold space.

The first is central bank buying. Central bank demand increased 74% in 2018.

The second indicator I’m watching is gold prices rising alongside the dollar. I’ve said this for years; the gold rally will not be sustainable if it can’t rise alongside the dollar because the increased volatility from overseas will push capital into the dollar.

In addition, Fed Chairman Jerome Powell has blinked and instead of proceeding with previously anticipated rate hikes, we may now get rate cuts and the Fed may also decide to stop unwinding its $4 trillion worth of bonds on its balance sheet.

The Fed currently allows up to $50 billion a month in proceeds from Treasuries and mortgage-backed securities.

The $4 trillion balance sheet is down $500 billion since the Fed started reducing its holdings.

fed balance sheet

So far so good, but we need to break through $1,365 and $1,369 or we’ll get a reversal soon.

There are two things you can count on from the Fed — the world’s most influential central bank. You can count on it to cater to the stock market and you can count on more Quantitative Easing.

The groundwork is already being laid for negative interest rates in the U.S.

A San Francisco Fed report recently “found” that after the financial crisis the economy probably would have recovered faster if the Fed would have used negative interest rates.

The European Central Bank, the Bank of Japan, and the Swiss National Bank have already been conducting monetary policy with interest rates below zero since at least 2014.

Needless to say, 2019 is shaping up to be a pivotal year for those of us who have been patiently adding to and accumulating positions.

It wouldn’t surprise me to see gold pull back in the first half to set up a big rally in the second half of the year, which gives us a little more time to add to our favorite positions.

Add a decision on the Section 232 petition in the uranium space and a deal with China that paves the way for infrastructure spending and we could very well see the best second half we’ve seen in quite some time in the gold, uranium, and base metals space.

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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