Gold: Not the Typical Year-End Buying Opportunity

Au Report

Source: Ron Struthers for Streetwise Reports 01/04/2018

Ron Struthers of Struthers’ Resource Stock Report takes a look back at gold’s performance in the last quarter of 2017, and describes a producer he’ll be adding to his portfolio in early 2018.

As of my last Seeking Alpha comments on gold on September 15, gold (GLD) had hit my $1,360 target and I was contemplating the possibility of a break above $1,375. I believed at that time the best chance for this was in September/October, because after that we would enter the typical year-end period of gold weakness. As it turned out gold made it no higher than my $1,360 target and the year-end weakness began to take hold.

I drag this same monthly chart out a few times during October to December each year and simply add on the most recent calendar year. Gold held up better than I expected this year as I believed we would bottom between $1,200 and $1,220. With the year at a close, I have updated my monthly chart and this year we can see that weakness was quite brief, with just the tail of the December candlestick dipping down to about $1,245.

I believe there are two main reasons for gold’s relative strength at this year’s end. There are a lot of froth and bubbles in capital markets, with bitcoin soaring, marijuana mania, and all stock market indexes up strongly this year without so much as a 5% correction. Some of this excess capital is finding its way into gold.

The second reason is that we are entering the later stages of the economic cycle. After the 2008 crash many economic pundits pointed out how weak the economic recovery was and how long it was taking, even as late as 2015/16. Trump’s election victory brought new optimism and 2017 marked the year of solid economic strength in the U.S. and abroad. In the later stages of an economic cycle, inflation begins to rise, along with higher interest rates, and this is usually a good period for gold. The Fed is always behind the curve, raising rates too slowly and/or not enough.

In September, I also suggested taking part-profits in Goldcorp Inc. (G:TSX; GG:NYSE) call options, and taking profits in New Gold Inc. (NGD:TSX; NGD:NYSE.MKT) around $4.00. In general, 2017 was not very exciting for the precious metal producers as they basically traded sideways all year. This is shown below on the Gold Bugs Index (HUI), trading between 180 and 210 for the most part and ending 2017 a few points higher than where it started.

It is the time of year I like to add some gold producers to the portfolio, and will start with New Gold (NGD).

In 2017, Rainy River was a “Rodney Dangerfield” to New Gold, as the company got no respect for it, and was actually disrespected, with the cost overruns. That is now water …read more

Source:: The Gold Report