The summer (inflation) cooldown continues…
We anticipated it in NFTRH well ahead of time using the (monthly 30yr yield) Continuum as a visual guide. The idea was that the inflation uproar of Q1…
…needed to be tamped down, preferably to a roughly symmetrical right side shoulder to the one on the left side of a would-be inverted H&S. Continue reading "Signs Of Inflationary Reflation Running Low On Gas"
A review of the situation in gold stocks. It is, in essence, a year ago that Warren Buffett ill-timed his entry into the gold stock sector, unwittingly calling a top to the post-crash rally and signaling the start of the 2020 inflation trades, which did not include gold stocks (for logical reasons, as belabored in NFTRH and at NFTRH.com over the years). Increasing the view that ole’ Warren was playing contrary indicator last summer were the usual gold perma-bull suspects coming out immediately after with bullhorns a blaring as we noted in real-time on August 17, 2020: Buffett Buys a Gold Stock!
In the scope of the entire correction, as the bids rotated out of the precious metals and to a lesser degree growth/tech stocks into value stocks and cyclicals (including commodities) the inflation-instigated reflation trades hit stride, and gold stocks were sent on a long decline. Again, if you tune out the perma-touts and think rationally, the miners were only doing what they should do (see below).
There were two false breakdowns, the second of which sparked a strong rally. We also caught Mr. Buffett for a contrary signal to that rally on February 17, 2021: Buffett Pukes a Gold Stock!
The rally terminated at a key resistance level (as plotted well ahead of time as a caution zone in NFTRH) and here we are with HUI below its down-turning SMA 50 and SMA 200 (which needed to hold as support in order to maintain a constructive view), back in the downtrend channel (actually the Handle to a still bullish big picture, which is beyond the scope of this post) and the near-term bounce that I had been expecting has finally arrived after the rude interruption of an unexpected lower low.
That low came off of positive RSI and MACD divergences and here we are, on the bounce with the channel’s upper line, the down-sloping moving averages, and a clear lateral resistance area all taunting… “‘C’mon Huey, we dare you!” Continue reading "HUI Technical Status And Gold Stock Fundamentals"
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.
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 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.
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"
To maintain the inflation, a cooling of inflation was needed
That is one of those Alice in Wonderland-like statements, like the one I’ve got tattooed on my left forearm: “Contrary-wise, what is it wouldn’t be and what it wouldn’t be it would, you see?”
To maintain inflationary policy, as per various talking Fed (egg) heads, the hysterical run-up in inflationary expectations and fears had to be tamped down. And so, Google users have indeed eased their neuroses right along with a recent tamping of inflationary hysteria.
While inflation expectations ease but remain on-trend. Continue reading "Inflation Cools (For Now), Stagnation Awaits"
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