Are you a contrarian or a victim?
These are the words of Rick Rule, who is one of the most successful resource stock speculators of our time. Mr. Rule’s famous quote is being put to the test while we approach yet another gold sensitive Federal Reserve Open Market Committee (FOMC) meeting. The markets reaction to the statement, which will be given by Fed Chairman Jerome Powell at the conclusion of the meeting on June 13, could possibly have huge implications for the sector heading into the summer.
Meanwhile, the mood in the junior resource complex is nearing “contrarians dream” status as sentiment indicators suggest a valid low happening soon. Not only has the retail speculators collective outlook become uber-bearish, one of the most respected newsletter writers in the complex has stated we are now in a gold bear market. At the Metal Investors Forum (MIF) in Vancouver last month, junior miner analyst John Kaiser began his opening remarks with this statement regarding the gold sector: “We are back in a bear market and my own feeling is it is not clear what is going to take us out of the bear market any time soon”.
While it seems as though this may be the case with most of the stocks in the junior complex who control sub-standard projects, I disagree with this broad statement. Although this has been a very frustrating and difficult stock pickers market for the past two years, there continues to be many individual success stories which are trending higher. I own shares in a handful of quality juniors that are trading at, or near, multi-year highs.
However, the appetite for physical gold has been weakening among retail investors overall. Last month saw the fewest Google searches to “buy gold” since July 2007, which was the eve of the global financial crisis. Furthermore, the SPDR Gold Trust GLD contracted 4% across May, erasing the previous two months of share issuance growth with the heaviest 1-month outflow since August of last year.
The rising U.S. equity market has kept gold below $1300 this week, despite a weakening dollar which is coming off a 6% move higher over the past six weeks. The recently falling greenback has also been giving a boost to oil, silver, and copper, yet gold has not benefited from its recent weakness with the buying in large cap equities fueling the appetite for risk.