Why this pullback in gold is temporary


I just returned from the Precious Metals Summit in Beaver Creek.

It was great meeting with people in person again, exchanging ideas, being able to network and vet companies.

It was also a great opportunity to gauge sentiment in the precious metals space among the crowd you think would be most excited: professionals in the precious metals space.

I spent a good bit of the conference congratulating other uranium bulls who have been patiently waiting for a bull market in that sector. A bull market that many have been waiting for — and some of us were positioned for.

I’m only half kidding.

The bottom line is there are many quality gold projects and companies being completely ignored by the market.

Great drill results... Who cares?

Resource update any day now... Who cares?

Great internal rate of return (IRR) on a Feasibility study... Who cares?

Which provides the perfect backdrop if you’re a contrarian.

The same approach I used with uranium the past several years, and aggressively this year — before the recent move — is the one I am using in the precious metals space.

What am I looking for? The list of things I just outlined that no one cares about.

Good share structures, good management teams, companies in stable mining jurisdictions, and near- to mid-term catalysts that will add value.

Value that the market will be forced to recognize when sentiment turns.

That’s the hardest part for speculators in a cyclical space to manage, waiting and adding when no one else wants to even if all the fundamentals scream buy.

Gold is down over 2% today and silver is taking a nice 4.5% beating. Why? Sentiment.

Today’s sentiment is that a better-than-expected retail sales number will lead the Fed to once again seriously consider tapering.

The reality is there’s not much wiggle room to tighten because of existing and proposed debt.

Write it down.

The second the Fed starts talking about tapering in a serious manner the major U.S. indices will sell off in a serious manner.

That will lead to backpedaling and subsequently more — not less — money printing.

Consider this. During the same week last month that the Fed discussed the possibility of talking about tapering, it bought $85 billion in bonds.

Heck of a way to “manage” the biggest inflation spike in decades.  

Not a transitory one by the way.

It’ll go that way until it all blows up.

There may be room for a symbolic quarter- to half-point raise in the next year or two but I’d be surprised if even that occurred.

What is true is the Delta variant wreaking havoc on lives and, less importantly, supply chains around the world.

Manufacturing data out of China shows an economy that’s growing at a slower rate than anticipated.

Industrial production in the world's second-largest economy increased 6.4% year-on-year in July and rose just 5.3% in August from a year earlier.

Consumer spending rose only 2.5% in August from a year ago, much lower than the forecast 7.0% rise and the slowest increase since August last year.

Not a slight miss on either front.

Record rains in China and Japan haven't helped.

And Japan has its own coronavirus surge that hasn’t helped.

Assembly plants in southeast Asia have shut down as rising infection rates along with chip shortages — partly due to COVID — have led to a global shortage of semiconductors that will cut worldwide production by at least 7 million vehicles this year.

The slower-than-projected growth has led to capital looking for safe harbor in the dollar, which in turn has led to the sentiment of the day.

It’s also led to another pullback in the copper price.

The pullback in the copper price is temporary.

The talk about tapering is temporary. 

The consolidation in the gold price is temporary (and nearing its end if i’m right).

With uranium we have a recent analogue of what happens when sentiment changes for the better.

Investors who are patient and disciplined are sitting on multiple 100% to 200% gains — or more — in the portfolio and the fun in that space is just getting started.

Those gains are rewards for going where the puck was headed, not where it was.

It’s clear to me where the puck is headed in the gold space.

Let's get it!

Gerardo Del Real

Gerardo Del Real
Editor, Daily Profit Cycle

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 Daily Profit Cycle, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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