Despite the highest inflation figures since 2008, along with a stock market sell off, gold has been consolidating its outsized gains from last week.
Then after technically becoming short-term overbought to begin the week, bullion has come under pressure in response to higher-than-expected inflation data.
These figures came in just after China’s Producer Price Index also showed a staggering increase of 6.8%.
Also ahead of economist’s consensus was the core PPI figure, the more volatile food and energy components of the index, which was up 0.7% in April and 4.6% year over year.
Its balance sheet is currently at $7.8 trillion and the size could increase to $10 trillion by the end of 2021.
The bottom line is the Fed is all in to support the economy by focusing on employment and ignoring inflation, while we are in truly unchartered territory given the un-proven economic policies being experimented with by “steely-eyed central bankers.” That is long-term positive for the precious metals complex and detrimental for the U.S.
At 1.7%, the yield on 10-year Treasuries is now about 2.5% higher than the yield on 10-year Treasury inflation-protected securities , compared with a gap of just under 2.0% at the end of last year.
Amid very positive macro fundamentals, the gold price is knocking on the door of its downtrend line from the all-time high at $2089 reached in August of 2020.
While underground gold reserves held by major mining firms continue to be low and falling, new reserves are becoming increasingly harder to find as resources are used up, and exploration is costly.
History shows that juniors de-risking a large deposit, likely to be of interest to a major mining company or financing partner, offer the best leverage to rising metals prices.
The VanEck Vectors Junior Gold Miners ETF fund GDXJ holds a portfolio of mostly mid-tier and junior mining shares of the companies involved in gold exploration and production.
During the 8-month consolidation process into the March low, each successive lower low stopped out more investors down to where there were no bears left and only buyers.
With the knowledge of gold being in a bull market, patient speculators have been given ample time to carefully construct a concentrated portfolio of exceptional junior gold stocks before the next up-leg begins.
However, time may be running out to accumulate a basket of junior developers controlling large projects being de-risked into the finance stage at these “fire sale” prices.
The JMJ service maintains a US$1 million real money portfolio and is completely transparent, which assists in teaching its members how to construct and maintain a successful junior resource stock portfolio.