Before updating the status of the gold miner (HUI) correction, let’s take a quick review of the Macrocosm because it’s always a good time to be clear on important macro considerations.
The graphic makes the following points that are the foundation of the NFTRH view on the right/wrong times to be fundamentally bullish on the gold-stock sector. In order of priority, a bullish view needs:
- A contracting economy, which…
- Drives counter-cyclical gold higher vs. stock markets (and many other assets), and…
- By extension, sees a general decline in economic and market confidence.
- When an economic boom phase ends, yield curves bottom and start to steepen.
- Gold rises vs. commodities and materials, some of which represent mining costs.
- Gold rises vs. all major currencies, which is also a sign of declining systemic confidence.
- Inflation expectations can be constructive for gold and especially silver, which drives ‘inflationist’ bugs into gold stocks, but this is not fundamentally positive if the inflation is cyclical and drives commodities like energy and materials more than gold. This is when gold stocks rise against their proper fundamentals. *
- Cyclical inflation, as in 2003-2008 can see the sector rise strongly (HUI was approximately +300% in that period) but the end will be bloody, as per the Q4 2008 sector cleanout.
- China/India “love trade”: Hahaha… when you see this in writing, run away from it.