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.
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"→
And that is welcome for monetary and fiscal policymakers of course since inflation is the only trick they have up their sleeve to bail this mess out once again. And this is no comment on COVID-19. The economy was slowly decelerating last year well before COVID-19 showed up.
The yield curve bottomed and turned up in August of 2019 as manufacturing was slipping, long-term yields were tanking and other economic signals were fraying in the wake of the trade war. So please, no convenient COVID excuses.
They were preparing to inflate because the Continuum told them to prepare. COVID-19 dropped the final hammer on the situation and brought the inflation on quicker and more intensely than might have otherwise been the case.
The Copper/Gold ratio is saying something. That something is that a cyclical, pro-inflation and thus pro-economic reflation metal shown earlier, remaining nominally positive on a down market day has, in relation to gold, taken out two important moving averages (daily SMA 50 & SMA 200) and is currently riding the short-term EMA 20 upward. RSI and MACD are positive.
Gold: Counter-cyclical, monetary, with inflationary utility.
Given the right circumstances (like desperate monetary and fiscal policy), which are in play on the wider macro, gold will probably do quite well moving forward. But maybe – for a while – not as well as some commodities if the Copper/Gold ratio really is up to something positive here.
Side note: the Palladium/Gold ratio is on the verge of going positive as well and of course the daddy of inter-metal ratios, the Gold/Silver ratio is still on a big picture breakdown (Silver/Gold has broken above a key long-term resistance marker). So you might want to look at these three metallic indicators together (along with more traditional non-metallic inflation indicators) in gauging the process toward inflation. Continue reading "The Copper/Gold Ratio Would Change The Macro"→
Polls show that you were optimistic about the probability of another rally for top metals. Both of them go well with the maps that I shared earlier this month. Let's see, in the updated charts below if they are going to justify your bold expectations.
Gold is the first as it has a stronger position now.
Chart courtesy of tradingview.com
The top metal completed the sideways consolidation that I showed you two weeks ago. It didn't touch the 38.2% Fibonacci retracement level at $1636 as it stopped at $1671, which is even higher than the first leg of this corrective structure, which was established at $1661. It is an entirely natural outcome as the last leg down started at $1766, also higher than the top of the first leg did at $1748. The second leg down was longer ($95) than the first leg ($87). Continue reading "Is Gold Poised To Move Higher?"→
The HUI Gold Bugs index has over the last 2 decades (encompassing both bull and bear markets) tended to bottom in July per stockcharts.com's data for the index. A seasonal average is not a directive, but it is a (+/-) guide to be factored. Last year gold stocks bottomed in May as we caught what would be a violent upswing. This year I expect the low to be in June or July.
As the stock market’s broad relief rally lumbers on, drawing the ire of bears that think it should be otherwise, a chorus of dissenting voices is blaming legions of shut-in Millennials and their Robinhood trading accounts for the excess. Maybe that plays a small part.
But here I’ll repeat that the Fed is balls-out printing money (really funny munny), manipulating Treasury and Corporate bonds and stating that it will have virtually no limits in this MMT (I would turn around MMT to call it what it actually is, TMM or Total Market Manipulation). They can give it a fancy name like Modern Monetary Theory but by any other name, it is chicanery and a scam that society will suffer the fallout from someday.
They are cheapening the munny units in order to give the appearance of rising asset (especially stock asset) units. Say it again… “they are cheapening the munny units in order to give the appearance of rising asset units.”
Hence, gold. The shiny rock, the bullion, the anchor to monetary sanity. In this surreal monetary realm, it is something real.
The goal of investing in or trading the gold mining sector is to capitalize on the desperate actions of monetary and fiscal policymakers vs. gold’s stability. Last week we covered a lot of details: Gold Stock Correction and Upcoming Opportunity. No need to repeat the details. People who know how to play this sector have been patiently managing the correction (whether that means selling into it, buying during it, being psychologically prepared for it, etc.) and planning for its end.
We keep a long list of quality miners, explorers, and royalty charts updated every week in NFTRH for this very outcome; an end to the correction and the next phase of gold’s bull market, which it is consolidating now, per this daily futures chart. If the negative RSI divergence does not resolve into a sharp drop soon it is going to then be big-time fuel for what could be a hysterical run-up to the 1940 target and possibly beyond.
Gold had become over-loved by financial refugees in March. They are now buying stocks again.* That is perfect because they should not be aboard the next phase. Their role will again be too knee-jerk and chase later on. Despite the consolidation since March, the daily chart (via TradingView) shows a completely intact situation at the up-trending 50-day average.
I’ll leave you with one final chart. There has been a reason gold has underperformed the stock market since the terror of early spring. That reason is because cyclical asset markets are and have been on a massive sentiment relief rally and sentiment will do what it will do in the short-term. Just remember that simple fact when you see the inevitable rationale like this that certain interests will try to feed you: Here Come the Golden Ghost Stories.
Gold/SPX has done a great job of taking out the excess while remaining intact. 5-year chart…
The Not So Great Reset
Lunatics far and wide talk about something called “The Great Reset” but that too is tin foil, whether aspects of it are true or not. It does not help your market management to have that crap in your head. Instead, let’s boil down the picture to the gold sector and realize that as the terror-stricken sentiment of March and April is being reset, so to is the over-enthusiastic sentiment in the gold sector.
The next bull phase should be arriving before long.
* I have been selectively long the stock market since March as well, but very aware of the gathering risks, which I personally and the NFTRH service manage accordingly.
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