On March 4th, I declared the secular gold bull market had resumed. Action in gold stocks since then has more than confirmed this. Below is a short excerpt from my analysis at the time:
“Gold resumes secular bull market
Now, while gold’s close on Thursday represents a more than 20% rise from its low of $1,052.94 an ounce in December, this isn’t the only reason gold is back in a bull market. Below are three reasons gold is back in a bull market and here to stay:
1. Technical indicators have turned bullish.
2. ETF inflows are soaring.
3. Negative interest rates have left investors with limited options.”
Click here to read 3 Reasons Gold Bull is Back.
More than two months later, the gold price actually closed below where it did on March 4th. Gold traded to a high above $1,287 an ounce Monday, May 16th, before a flash of selling sent the metal lower.
Zero Hedge reported on the story immediately, writing:
“Over 18,000 contracts – or over $2.3 billion notional of gold has been dumped in the last 10 minutes…”
Despite this massive quick collapse, gold closed up slightly on the day. The sideways trading of the past two months has done little to stifle confidence in junior gold stocks.
Gold stocks have historically led the metal higher into previous bulls. This is not a guarantee the gold bull market will begin to accelerate, but a darn good sign.
Gold Stocks leading Gold Bull Market
Gold stocks are overbought in the short term; one look at the 50 or 200 day moving average on the GDXJ above proves it. Gold, on the other hand, remains firmly in its up trend. So, from a technical standpoint, gold remains favorably positioned.
On March 4th, I warned the increased demand in exposure to gold-backed ETFs from investors would lead to rising accumulation of the metal. I was right as this trend has continued unabated in the past two months.
Gold holdings in ETFs are now rising at the fastest pace since 2009. Total holdings are at the highest level since 2013.
The gold markets remain on fire as capital flows back into the junior gold space and the TSX Venture continue. In preparation for this bull market we published an EBook where we reveal 50 leaders who took small-cap stocks to stunning multimillion and, in some cases, billion dollar buyouts. The companies these leaders run today are described in this one of a kind rolodex of some of the top entrepreneurs and business minds in the small-cap mining, technology and energy sectors.
The increase in gold ETF holdings is due to fading confidence in central banks who refuse to raise rates under anemic growth, ballooning annual deficits and mounting debt. This leads us to the third point I outlined in early March – negative interest rates.
Every financial magazine or online newspaper has a daily article on negative interest rates; who negative rates hurt, why central banks are utilizing them and which country might adopt them next. All of this is depressing savers and forcing investors into assets such as gold.
“BaFin, Germany’s financial services watchdog, said last week that pension schemes in Germany might soon be forced to cut benefits for retirees as a result of the low interest rate environment.
Bafin’s comments come just two weeks after the head of France’s largest public pension fund warnedmany retirement funds in Europe will “implode” if the ECB’s low interest rate policy continues.”
Negative interest rates are here to stay in many countries as a clear path to sustained economic growth remains unclear. With this being the reality, gold and gold stocks are set to perform well in the coming quarters. Do not think the near parabolic rise in some junior gold stocks will continue as all markets and assets classes need time to consolidate and correct before moving higher. As for the secular gold bull market… its definitely on.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.