Gold Bug Survivors Prepare to Capitalize

It has been a classic washout in the gold stock sector, but if positioned correctly opportunity is setting up.

  • The ‘macro’ and sector fundamentals have been incomplete.
  • The technicals have advised a downtrend since mid-2020 with the exception of one head fake in March-April, 2022.
  • Sentiment, which was over-bullish in mid-2020 and April 2022 is now opposite, and very bullish on a contrarian basis.
  • The sector is deeply oversold as evidenced by an extreme in the Gold Miners Bullish Percent Index (BPGDM).
  • Commitments of Traders data for gold and silver are positive and very positive, respectively on a contrarian basis.
  • As has been proven by the facts of recent history, the view of cyclical (as opposed to ‘stag’) inflation being terrible for gold stocks was correct, even as this view was lost in the din of opposing – and tragically wrong – opinions by heavily followed Twitter ‘influencers’ and other dignitaries.

So here we are, intact.

What have you done for me lately, smart guy? Err, not much. There has been a lot of waiting, biding time, trading other areas and sitting on cash; a high percentage of it.

But as speculators, traders and/or investors are we not called upon to never set our views in stone? Are we not called upon to be ready to capitalize on extreme events within the markets? When the herds run one way we need to be ready to go the other. The herds are not prepared because they’re either already deployed or too busy running from losing positions.

Gold bug herds, AKA less experienced or analytically critical precious metals bulls, are currently running that way, over that cliff over there. They have been herding since August 2020, when we first noted the danger.

Such events climaxed in 2008 and 2020 too. In each of those instances a crash took place and it coincided with fundamentals slamming into place. Crashing gold stocks + ramping fundamentals = big time buy opportunity.

As noted in the first bullet point above, the fundamentals have not slammed into place on this cycle. They are grinding into place, slowly and outside the limits of the average market participant’s patience. But that is exactly why contrarian investing is so difficult. It is very hard to have patience when time takes what it takes for an opportunity to play out, especially when your viewpoint is not reinforced by a majority.

So that is the background. We have been more than prepared in managing risk. That is how markets often go… manage risk > manage risk some more > manage risk for so long you almost lose sight – in real time – of why you’re there and what your job is > and then PREPARE TO CAPITALIZE.

Intact players should now be considering the big sentiment event on tap for next week as the Fed, which was jerked kicking and screaming into hawk mode by the bond market, prepares to render its big decision (on July 27 they will either hike the Fed Funds by .75% per 71% of CME traders or 1% per 29% of CME traders).

Meanwhile, the Gold Bugs index is tanking toward a higher low to the 2018 low, which is really all it needs to do to keep the volatile series of higher highs and higher lows (AKA a bull market) intact.

I use shorter-term charts and of course the ‘macro’ and sector fundamentals and sentiment to fine tune the situation, but this general monthly chart picture should not only cause no concern for would-be buyers who are well prepared; it should stimulate greed while a majority of bugs are gripped in fear.

Gold Bugs Index Chart


Gary Tanashian

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'Anti' Markets

These daily charts are flipped over to a view that is ‘anti’ their normal selves.

I have often referred to the improbably bullish (to many; NFTRH has tracked and respected the bullish dollar for a year now) US dollar as an anti-market, the liquidity collector from the global liquidity-driven and speculative mess created by the Fed and its fellows.

But here is a look at some markets (ETFs & indexes) in their opposite or ‘anti’ suit. In other words, here are some charts flipped over. If the chart is bullish the underlying asset/market is technically not.

The major risk in my opinion is in the over-hyped inflation trades as inflation signals fade. That means commodities, mainly. But also Materials, Financials and other areas thought to be ‘reflation’ sensitive and highly cyclical.

While the environment that is developing should be positive for gold and especially its miners, reality is often a different matter in the short-term. As noted in the previous post and in the recent interview with the Daily Gold, that reality, if past is prologue, is that some significant number of gold mining investors are wrongheadedly in it for inflation. If the inflation trades do fail then gold stocks tend to be vulnerable at first.

The hope against the crash scenario would be that the post-2020 correction has mitigated the damage the inflation herds will do when they give up the inflated ship. But hope is not an investing strategy.

Personally, with all of this in motion I am staying balanced and open minded. No dogma or robot thinking. Just day to day, week to week and letting it play out (with the odd minor mental whipsaw here and there). Continue reading "'Anti' Markets"

A Pivotal Juncture for Gold

With FOMC on tap with an upcoming .5% rate hike, gold got hammered and bounced back with a vengeance on ‘CPI’ Friday. The Fed will raise the Funds Rate at least .5% next week. So says not me, but the wise guys whose job it is to correctly anticipate FOMC policy. Indeed, a full 20% of CME traders expect .75%, up from our last check on June 3.

Meanwhile, the gold price (futures) was unceremoniously shoved below the daily chart’s SMA 200 before pulling its bounce back routine on CPI Friday. Check out that reversal volume. This is notable stuff and with FOMC in the wings, it is doubly so.

To NFTRH, unlike many gold/commodity observers, gold is far different from the other inflated stuff. It has far more counter-cyclical aspects to it than copper, industrial materials, energy commodities and even to a degree, silver. Continue reading "A Pivotal Juncture for Gold"

This Is Not Your Grandpa's Inflation Problem

The Fed is starting to play catch-up with inflation signals from the bond market as evidenced by the Fed Funds Rate finally being pulled upward by the implications of the rising 3 month T-bill yield, among other more obvious signals like the long since rising 2yr Treasury yield and ongoing inflation headlines we read about every day.

After the June FOMC meeting, an additional .5% hike will be in the bag as CME Group traders are forecasting.

But as noted in this post about the May ISM (manufacturing) and Payrolls, supply chains are ever more involved in the narrative. Captain Obvious wants you to know that an economic drag is being caused by the past and present COVID-19 shutdowns, the war in Ukraine, and increasing global political tensions and saber rattling. Continue reading "This Is Not Your Grandpa's Inflation Problem"

As Inflation Signals Cool, Various Markets Get Relief

Whether a bounce or something more extended, a bear market rally was bound to get off the ground sooner or later. It was a matter of time, with stock market sentiment this over-bearish.

Here is how the US Stock Market segment led off last weekend in NFTRH 706:

bear market

We then covered the technically bearish state of the major indexes, which are clearly trending down on longer time frames. Sentiment is a tool. TA is a tool. Macro fundamentals are another tool. These tools and others should be used together to refine probabilities in the markets. Continue reading "As Inflation Signals Cool, Various Markets Get Relief"