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Gold consolidating recent outsized gains into Fed week

December 8, 2023

NEW YORK (December 8) Last week was pivotal for the precious metal’s complex, with the gold price closing above key resistance at $2000 on a monthly basis after numerous failures to do so over the past 3.5 years. Inside of a run that saw the safe-haven metal move to an all-time intraday high of $2152 on Sunday evening, Gold Futures have quickly moved down towards former 12-year resistance at $2000, now key support. 

Although the gold price made an intraday all-time high above $2090, a monthly close above this level is required for a technical breakout to be in place. A monthly/quarterly/yearly close above $2100 on December 29 would likely trigger a strong advance next year with an initial cup & handle breakout target of $2500, and Fibonacci measurements being $2460 and $3300.

February Gold opened Sunday evening in thinly traded markets and quickly zoomed to an extreme overbought intraday record high of $2152 on reports that a U.S. warship and several commercial ships were attacked by Iran-backed Houthi rebels early Sunday morning. The USS Carney fired back, taking down three unmanned aerial drones.

It is unclear whether the U.S. Navy ship was also a target of the attack, or was simply coming to the aid of the commercial vessels. The drones were later shot down by a U.S. warship, leaving investors to focus on a renewed rally in the U.S. dollar and take outsized short-term profits in gold.

By the Comex close on Monday, the safe-haven metal had reversed over $100 to end the day at $2042 as an extreme short-term oversold USDX bounced from critical support at 103. The world’s reserve currency has gained added strength this morning, after a better-than-expected U.S. jobs report which could set the tone heading into the Fed's policy meeting on Dec. 12-13.

Nonfarm Payrolls (NFP) in the U.S. rose by 199,000 in November, the U.S. Bureau of Labor Statistics (BLS) reported on Friday. This reading followed October's increase of 150,000 and came in above market expectations of 180,000.

Other details of the report revealed the Unemployment Rate declining to 3.7% from 3.9% in the same period, while annual wage inflation, as measured by the change in Average Hourly Earnings, held steady at 4% to match analysts' forecast. The Labor Force Participation Rate ticked up to 62.8% from 62.7%.

The latest U.S. employment data is impacting interest rate expectations, yet the CME FedWatch Tool shows market projections for a March rate cut remain near 50% and is fully pricing in a cut in May.

Ahead of the last FOMC meeting of the year, with the Fed expected to keep rates steady for a third consecutive meeting at 5.25-5.50%, there was more evidence this week of central bank tightening cycles coming to an end. The Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) hit the pause button, while investors also expect the European Central Bank (ECB) to hold rates unchanged on Dec. 14, and to cut rates by 150 basis-points starting in March.

Central banks globally have made record purchases of gold since early 2022 and into the fourth quarter of this year, as they hunt for safe havens from high inflation and volatile bond prices. Concerned by the decision by the U.S. and others to freeze Russian assets, central banks have opted to buy physical gold rather than derivatives or exchange traded funds that track the metal’s price.

There have also been some reports that Chinese bank traders have recently been accumulating massive amounts of gold. Late last month, commodity analysts at TD Securities noted that in mid-November, Chinese traders bought around 17.5 tonnes of notional gold.

China has accumulated $15 billion of gold since 2022, which is a very clear signal that the People’s Bank of China (PBOC) wishes to continue increasing its gold reserves. The PBOC is committed to diversifying its foreign exchange reserves away from the U.S. dollar, along with several other Eastern central banks.

The ongoing de-dollarization and underlying fear over an upcoming recession, in which disinflation trends can allow for Fed cuts, is also now gold bullish not just supportive.

Moreover, there is the ongoing polarization and tensions on the U.S. domestic political scene that could yet turn the 2024 election into a nightmare. Impeachment discussions are underway of President Biden from the Republican led Congress, while Democrats continue in their attempts to put the leading GOP candidate and former President Donald Trump in jail before the election.

Meanwhile, geopolitical instability and increasing consciousness of possible effects of the excessive and ever-growing U.S. national debt offers upside risks for the gold complex into 2024. But the best opportunity for outsized gains to capitalize on the next up-leg in the gold complex lies in undervalued and under-owned quality junior gold stocks.

Despite gold stocks setting a significant 7-year cycle bottom in September 2022, after multiple price failures at $2000 gold even the most ardent Gold Bulls have continued to exit positions in higher-risk precious metal’s juniors since May of last year.

Although several juniors experienced moves of +30%-40% higher from bombed-out lows last week, when viewed on long-term monthly charts the quality issues still have plenty of catching up to do in relation to the miners.

Recent events have created a generational opportunity to accumulate historically undervalued quality precious metals related juniors ahead of the most important gold breakout in over 50-years. According to Bank of America, 71% of wealth advisors hold 0-1% of gold in their portfolios, while the entire market cap of the mining space is equal to less than Home Depot’s at just $300 billion.

Once gold breaks out to new all-time highs above $2100 on a monthly closing basis, the mainstream media will start paying attention to gold stocks, while momentum traders and fund managers will begin moving into the under-owned junior space. With most generalists still on the sidelines, it is best to position oneself before the herd comes into this tiny sector.

In anticipation of the incredible gains the junior sector will begin to experience once the gold price prints a technical breakout above $2100, the Junior Miner Junky (JMJ) newsletter has accumulated a basket of quality juniors with 3x-10x upside potential into 2025-26.


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