Gold stocks have become the ultimate contrarian play

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5 min read
fairly difficult
Kitco News' contributed commentary features articles and opinions from some of the top experts in the gold industry.
The week began with most everything being sold, with the U.S. dollar and gold receiving safe-haven bids heading into another highly anticipated FOMC meeting on Wednesday. The selling started in China on concerns over its property market and spread to Europe, then the U.S.

However, when Federal Reserve Chairman Jerome Powell stated the benchmark interest rate will remain near zero, but could rise sooner than originally anticipated during his concluding remarks at mid-week, gold quickly reversed its earlier gains.

Furthermore, once Powell said he personally does not feel the need for a "super strong" jobs report in order to begin tapering economic stimulus during a virtual press conference with the media, the gold price began heading back down to recent support at $1750 into the following session on Thursday.

In response to the potential impact from Fed changes to its stimulus and rate hike on Wednesday, the move lower yesterday was the second time in a week that gold had lost about 2% or more. Gold particularly came under pressure on Thursday after yields on the benchmark U.S. 10-year Treasury note hit above 1.4% for the first time since July.

The yield is an indicator of market expectations about real inflation and how quickly the Fed will have to react to curb inflationary pressures. On the downside, if we see a weekly close in Gold Futures below $1750 later today, investors must be mindful of a possible test of critical support at $1,675 heading into quarter-end next week.

Also, the $22 level in silver is a major support level that precious metals investors should pay close attention to, as this region has been critical support that has been tested three times over the past 14 months. If the bears are able to run the stops below $22, then we could see $19 silver quickly.

Meanwhile, the miners remain mired in a now 14-month correction of out-sized gains in 2020. With risk-on sentiment returning to the marketplace, the GDX lost critical long-term support at…
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