Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Price Soars on Revised FED Expectations

Commodities / Gold and Silver 2016 Feb 05, 2016 - 12:42 PM GMT

By: Jason_Hamlin


If FED backtracks from rate hikes, gold miners can go up 50%. – CNBC Feb 4th, 2016

We have been predicting for months that the FED would not be able to raise rates as aggressively as the market was expecting. Thus, we have been long gold and mining stocks believing that a reset in expectations for how fast the FED would raise rates would be bearish for the USD and bullish for gold.

While we’ve already seen a huge move in precious metals thus far in 2016, I believe the gains are just getting started. The technical charts are very bullish for precious metals and mining stocks, as they have been consistently making higher lows and higher highs over the past few months. The gold price has also blasted upwards through resistance at both the 100-day and 200-day moving averages, a bullish sign.

Gold Chart Feb 4

While the overall chart is very bullish, the RSI momentum indicator suggests that the current move higher may have recently become overheated. So, we could see a pullback towards the 2016 uptrend line at some point in the coming weeks. But I expect the uptrend in gold to continue unabated throughout the remainder of 2016 and into 2017.

Despite this impressive move in the gold price, mining stocks are still vastly undervalued, especially relative to the price of the underlying metals. The HUI-to-Gold ratio shows the relationship of mining stocks to gold over time. While there has been a small bounce off lows below 0.10, mining stocks remain near their most undervalued levels in history. In fact, the index shows that mining stocks are more undervalued now than at the beginning of the gold bull market in late 2000 or the depths of the 2008 financial crisis.

HUI Gold ratio

This suggests that there is huge upside ahead in mining stocks, even absent a huge move in the gold price. However, if the gold price climbs above $1,500 or returns to previous highs, I expect to see astronomical returns from mining stocks. While many stocks will see leverage of 3x to 5x the underlying move of the metal, I believe the best-in-breed mining stocks that we hold in the GSB portfolio, could see leverage in the range of 10x to 20x the gain in the gold or silver price.

The move higher in precious metals during 2016 suggests that we have most likely seen the bottom of the current correction. The total U.S. debt has recently made a new record after topping $19 Trillion and physical demand for precious metals has been very robust in the past year. Therefore, I expect the gold price to continue higher in 2016 and mining stocks to generate significant gains for investors that are brave enough to buy while sentiment still remains largely bearish.

The risk for gold bulls is that the equity markets bounce strongly, inflation ticks up and the FED returns to an aggressive stance regarding the pace of interest rate tightening. This would likely re-ignite the USD rally, finally push the index above resistance at 100 and lead to funds flowing out of safe-haven assets like gold and back into equities. However, I see the odds of this scenario playing out in 2016 as extremely low. The USD index has likely topped out, after failing once again to break above resistance at the 100 level.

Furthermore, gold has a history of rising along with interest rates, in a complicated relationship that few investors fully comprehend.  Gold has dropped largely on the expectations of the FED raising rates. Now that they have started and expectations of additional rate increases are falling sharply, the sky is the limit for the gold price going forward and I expect huge amounts of wealth to be generated by those positioned in the best-in-breed mining stocks.

I especially favor gold and silver companies that have high grades, low costs, significant growth in the pipeline and seasoned management. Those that have been acquiring new projects over the past few years at deeply suppressed prices will be rewarded for running against the herd and the value of their investments skyrocket. Those are the companies that we focus on acquiring the Gold Stock Bull model portfolio and we are confident that they will outperform by a wide margin as the gold bull market awake from its slumber and charges higher once again.

You can sign up to receive our monthly Contrarian Gold Report, view the portfolio and get our weekly trade alerts for less than $1 per day.  Click here to get started now!

By Jason Hamlin

Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. Click here for instant access!

Copyright © 2016 Gold Stock Bull - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in