I have read that the election of Donald Trump as US President seems to have inspired gold and silver buyers. But the facts are different. From the close the day following the Nov. 8 election, the price of the VanEck Junior Goldminer Index (GDXJ) has dropped -6.7% through yesterday’s close, and today the price is down a bit more. I think there is a pull-back to follow.
Some will say that Trump will pump up the US Dollar, which would depress prices. Others will say that higher interest rates that are surely on the horizon will also negative impact prices. Others will counter with the notion that an onset of inflation will carry the day. My thinking is that none of these factors will play a major role in pricing decisions because the emotions of precious metal buyers will serve to push price momentum higher until there is a climax and subsequent crash.
But that is the Big Wave Theory. We ought to be focused on the near-term. Since the close of GDXJ at $28.18 on December 21, the index soared +33.3% through yesterday, a total of just 22 trading sessions. This kind of market enthusiasm is positive for the long-run, but is unlikely to be sustained for much longer, I think. Prior to my adding more gold- and silver-miners to my portfolio, I would be looking for a pull-back of a few weeks’ duration.
It matters not whether the latest bump in precious metal prices has come because of the general concern that Trump’s tweets will upside international diplomatic relations or due to his planned budget deficits (from super-spending alongside corporate tax cuts), or elsewhere, I believe a new bull phase is underway, which will ultimately exceed all-time highs.
Goldminer seasonality is typically bullish through January and February, often peaking in a fever pitch in early March around the time of the well-attended annual convention of the Prospectors and Developers group in Toronto. For this year, though, I’m not so sure. Prices still have much further to rise to match the highs of 2016, so I think it’s best to simply focus on week to week price action. In the short-term, I believe that any pull-back will lead to more buying and that longer-term, the Original Gold Bug, James Dines, might be right in his recent call for $3,000-plus prices.
I have developed a new Cara 100 Gold & Silver Portfolio Strategy that will soon go out to clients. Much more writing in these pages on the precious metals market segment will also come…
/Bill
