Update: Gold Mining Fundamental Macrocosm

Gold miners require a unique macroeconomic backdrop.

When gold-stock bulls complain about a “smackdown,” a “hit,” or a “smash” against the poor gold-stock sector, what they should be thinking about is what a relatively small market the gold stock universe is compared to the multitude of galaxies populated by cyclical and risk on stocks and commodities and the massive bond market. The gold stock sector’s noise to trading volume ratio must be far and away the biggest bull market on the planet (I know because I am part of it :-)).

And once in a while, the sector actually warrants all that noise. Like in 2001 when markets were beginning a bear phase, and economies were faltering, like in Q4, 2008 when gold stocks were crashing to unwind previous inflationary excesses, leading stocks and commodities into a terrible crash and rebounding first. Like in March of 2020, when the miners crashed and ‘V’ bottomed to lead what is to this day an ongoing economic recovery born of inflation, gold and gold stocks first sniffed out.

And that is the rub. Personally, I have been favoring the prospect of a strong bull market (target: 500) after initially projecting an A-B-C upside correction target of 375 in 2019, which we put in the books at 373.85 last August. But in order to continue favoring an ongoing bull market scenario, the macro fundamentals must play ball, and play ball they have not since last summer. Hence, the A-B-C upward correction and ongoing bear market scenario gains strength with each passing month of positive economic activity, regardless of the inflation it was created with.

hui

Enter once again the Macrocosm because it is time for a reminder to myself, if not you, that the macro must rotate negative in order for the gold-stock sector to be anything special. Speaking of rotation, it has been rotating alright, but with yields and inflation signals fading that rotation is not into a deflationary situation that would produce a big gold-stock buying opportunity but is instead something of an interim Goldilocks scenario (easing inflation expectations, firming USD, Tech and Growth bid up, etc. while the economy remains okay). Continue reading "Update: Gold Mining Fundamental Macrocosm"

Gold's Inflation Utility

Gold is okay, but not yet unique

There are times when gold is an okay inflation hedge while under-performing the likes of industrial metals, oil/energy, materials, etc. During those times, if you’re doggedly precious metals focused you should consider silver, which, as a hybrid precious metal/industrial commodity, has more pro-cyclical inflation utility than gold.

But as I have argued for much of the last year, if the inflated situation is working toward cyclical progress (as it is currently) then there is a world full of trades and investments out there to choose from, many of which are trouncing gold (which, as I have belabored for the better part of 2 decades now, is not about price but instead, value) in the inflated price casino.

The latest ISM Report on Business shows one negative among the important areas as employment declined. Now, before we get too excited about that gold-positive reading let’s also realize that manufacturing employment is still growing, new orders are briskly increasing, backlogs are up and customer inventories are down. In short, manufacturing continues to boom.

ism report on business

But being inflation-fueled, the economic recovery also has a ‘prices’ problem… and a materials/supplies problem (unless you’re one of the 2 or 3 people out there with a deep desire to own Acetone. There are potential Stagflationary elements to this situation, which would come forward if the economy starts to struggle due to inflation and the economic pressures it is building. Continue reading "Gold's Inflation Utility"

Gold: What A Long And Not So Strange Trip

The Gold Miner correction was well earned, but it was not a bubble.

Even today there is some pablum out there talking about how if inflation is good for gold it is especially good for gold miners. I will simply repeat once again that if gold usually does not benefit fundamentally by cyclical inflation (i.e. inflation promoted for and currently working toward economic goals) the gold miners never do, unless they rise against their preferred fundamentals as they did during two separate phases in the last bull market, which were justly resolved with crashes.

Here are a couple charts we used in NFTRH 648 in a segment written to set the record straight. We have also used these charts – especially the first one – since the caution flags went up last summer, visually by the first chart and anecdotally by the usual suspects aggressively pumping the unwitting masses. Buffett buys a gold stock!… okay, well so much for that. Sentiment became off the charts over-bullish and now, as we prepare for the final act of the correction, it’s the opposite. That’s perfect.

HUI had far exceeded the Gold/SPX ratio and so it was very vulnerable from a macro fundamental perspective. Why on earth would players want to focus on miners digging a rock out of the ground that was starting to fail in a price ratio to the stock market? They wouldn’t, and since last summer they didn’t.

Gold

But from a sector fundamental perspective the Gold/Oil ratio (Oil/Energy is a primary driver of mining costs) and HUI show that the 2020 rally was nothing like the two bubbles of yesteryear, when not only did HUI hit danger signals (!) noted above by a macro fundamental indicator, it also made two separate bubbles vs. this sector fundamental. This time? Nope, no bubble here. Continue reading "Gold: What A Long And Not So Strange Trip"

Gold Miners: Beautiful Pictures

After a well-deserved correction of nearly 3 months, the gold stock sector is still flashing positive signs beneath the surface, as the correction matures.

The correction that began in August amid the ‘Buffett Buys a Gold Stock!‘ tout has now ground on for nearly 3 months. As noted in the NFTRH 626 Opening Notes segment:

“Thus far the correction in gold, silver and the miners is perfect, where perfection means long, drawn out and maddeningly frustrating to bulls (and bears thus far). That’s what corrections are, remedies to excitement, confidence and of course, greed.”

We are managing the technical details (and associated strategies) of the correction in HUI and individual gold stocks each week in NFTRH, but as a gold stock investor, it has not been a time for making money since August. As a trader, it has been a difficult time for making money as well, because of the lack of a definitive drop that the sector’s corrections are known for. It has been a grind, and in that annoying, time-consuming process, it has been perfect.

Below are some pictures that we have maintained front and center during the correction in order to disqualify or more likely, confirm the macro bull view for gold and the miners. This was so that subscribers could sell, buy or hold as they see fit, but more importantly so that we could know the status of the backdrop all along the way to make better-informed decisions.

Meanwhile, the perfection has been in the cleaning of the investor base, a large portion of which thinks that inflation is good for gold miners. Often it is for the stock prices, but rarely is it good for the bedrock sector fundamentals. One of the best measures of the real price of gold is the Gold/CRB ratio, which is in part of the measure of the gold mining product vs. gold mining costs, especially energy costs. Continue reading "Gold Miners: Beautiful Pictures"

Following The Gold Stocks Leaders As The Fed Prints

Gold stocks have led the market for a year, and with economic deceleration and Fed policy response that leadership looks to continue [edit: today’s ‘in the bag’ bounce-back Jobs report does little to alter the economic deceleration theme]

We have been on a bullish gold mining view for over a year now. Over that time there have been three interruptions, the downward-biased consolidation from August to November 2019, the flash crash (and very constructive gap-filling mission) in March and most recently the pullback that logically began in May as broad stock market relief started to fan out to more and more momentum chasers who’d finally gotten the hint that the Fed means to devalue the US currency (in competition to a degree with its global counterparts seeking to do the same), making cash a non-viable investment position (other than for risk management to the bullish asset market atmosphere).

The daily chart of HUI shows a successful support test, purely up trending moving averages, all gaps filled but the breakaway gap (a ‘breakaway’ does not need to fill any time soon as it changes or reasserts a trend; there is also an old gap from 2016 near 100 that we need not worry at this time), RSI now positive and trending up above its EMA 20, MACD triggered up and positive and neither of them showing overbought readings. Ah, the beauty of a routine correction within an uptrend. All systems on this daily chart are technically ‘go’.

Gold Stocks - HUI

What’s more, the HUI/SPX ratio is now on an uninterrupted 1-year uptrend. With the come-lately players (institutions, hedge funds, black boxes, Ma ‘n Pa and knee-jerking herds of all stripes) having moved on to perceived greener pastures due to the broad stock market’s May-June outperformance the gold miners are again taking leadership. Continue reading "Following The Gold Stocks Leaders As The Fed Prints"