Tag: Notes From The Rabbit Hole (NFTRH)

Gold Stock Correction And Upcoming Opportunity

Posted on by Gary Tanashian

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.

Continue reading "Gold Stock Correction And Upcoming Opportunity" →

Silver/Gold Ratio Hits Target

Posted on by Gary Tanashian

The NFTRH plan is and has been that the gold mining sector, due to the fundamentals implied by the handy graphic below, could eventually lead a world full of inflatables higher. The miners, leveraging gold’s outperformance to most everything else during liquidity crises and even deflation, move first and draw in the inflationist bugs later. If the macro goes inflationary the miners will likely continue to perform well (ref. the 2003-2008 period) but would no longer be the go-to sector.

Then the play theoretically spreads far afield into commodities, global stocks (e.g. EM, Asia, etc.) and US markets/sectors that tend to benefit from the rising long-term yields (e.g. banks, materials, etc.) resulting from inflationary macro signaling. These would be aspects of a sustainable inflation/reflation trade IF the signals are in order. So let’s take a look at some of them.

The Silver/Gold Ratio (SGR), a reflationary risk ‘on’ indicator has hit our upside target, which we have tracked in NFTRH updates over the last few weeks using the yellow box highlighting an area near the down-trending 200-day moving average that would at least temporarily halt the party. The SGR is pausing and pulling back a bit here. All normal so far. Continue reading "Silver/Gold Ratio Hits Target" →

'Sentiment Event' Rally Grinds On

Posted on by Gary Tanashian

Excerpted from this week's edition of Notes From the Rabbit Hole, the Opening Notes segment of NFTRH 602:

As we noted in March while it was happening the sentiment environment became terror-stricken. Not fearful. Not over-bearish. Not even a contrarian extreme. Market sentiment was marked by full-frontal terror as indicator after indicator (ref. Sentimentrader's historic readings week after week) got slammed to epic over-bearish proportions.

Into the breach sprang the Treasury (i.e. taxpayer) backed Federal Reserve to the rescue. As the employment numbers come in at the tragic readings that we all saw coming the bears are out there beating a drum (ah, Twitter) about why it is not right, why the Fed cannot print a bull market, why the stock market is going to make new lows and why you should avoid stocks! They have been saying this since the terror-stricken days of March and they are still saying it now.

And do you know what? The rising risk profile that we have been noting for weeks will likely paint them as being right before too long. Imagine all those 'man who predicted a new stock market crash now predicts... (blah blah blah)' headlines that we will be subjected to as the paint-by-numbers media look to feed easy answers to the public later in the year and into 2021. The bears will probably be right but here’s the thing, they have not been right for nearly 2 months now. Continue reading "'Sentiment Event' Rally Grinds On" →

Gold Miners And Inflation

Posted on by Gary Tanashian

I think the case is closed, or it should be closed. But with firmly ingrained perceptions passed down from one generation of inflationist gold bugs to the next, you never know. Remember the old dismissive “gold is silver is copper is tin is oil is hogs” line from the 2003-2008 time frame? Probably not, but I remember it because it was me saying it against an army of inflationist commodity and resources bulls advising to buy gold, buy silver, buy oil… buy resources of all kinds to protect yourself from the evils of inflation!

As an interlude, here is a pleasant interaction I had with a reader (actually, the interaction was his in a comment to an article of mine, but you get the drift) during the 2016 gold sector launch that ultimately proved to be ill-fated by mid-year because… inflation.

I’m sick of internet d******s and the lying media and govt trying to tell me there’s no inflation! Inflation in the US is VERY HIGH. Its currently 8.3%, and has averaged 9.5% over the past 7 years.

Dude, the article was about why gold stocks do not benefit from inflation and why at that time the backdrop was positive (again, it degraded badly later in the year as inflation reared its head). Of course, there is inflation, all along the Continuum of deflationary macro signaling against which they routinely spray the stuff out of fire hoses, like now for example.

Without the secular decline in Treasury bond yields and complete abdication of the mythical Bond market Inflation Vigilantes, the decades-long inflationary regime would not be possible. Jerome Powell was unimaginably hawkish during the market correction of late 2018. The herd could not understand why, but we could. Inflation signals were getting out of hand as the yield spent a couple of months above the Continuum’s limiter (monthly EMA 100).

30 year bond yield

But sure enough, that got fixed as we suspected it would as the Continuum got hammered down since then into today’s deflationary doldrums. The Continuum has reloaded the inflation gun yet again as yields have tanked and bonds have bulled ever since. Continue reading "Gold Miners And Inflation" →

Gold Miners Show The Way

Posted on by Gary Tanashian

[edit] It goes without saying that gold miners and the royalty companies that live off them will be shown to have been impaired like many other companies by the coming Q2 numbers due to shutdowns. An emailer questioned my view on this and it has been one of my personal caution points. Markets should be looking ahead, but during this euphoric sentiment release across broad markets maybe they’re overlooking some things. The other caution point is that a big bullish expression on the heels of the Fed announcement is also a setup for short-term disappointment. So with respect to the daily chart below, maybe Friday’s gap will fill after all. But as noted in the article below “the gold stocks lead and their fundamentals and value proposition will have improved by leaps and bounds as we exit the COVID-19 global lockdown”.

It’s a good Friday because I get to start my weekend work earlier. Many people temporarily have no weekends because they are huddled at home as one day bleeds into the next amid the global pandemic. Monday is Thursday is Saturday. Good Friday is Halloween is Festivus.

But when times are normal I have no weekends, working 7 days and most intensely on the weekends (with more freedom than the average worker on weekdays). When times are abnormal like now, I work hard on weekends but the more intense days are during the week. As one subscriber put it:

“What a wild ride lately… Thanks for busting your ass for us all lately. As always, you’re the only reason I can handle being in this game.”  -Tom A  3.25.20

That was in reference to the massive amount of in-week effort we (I write “we” because it takes effort to be an NFTRH subscriber because they are tasked to work, not just receive instructions from some clown dressed as a guru) put in to manage volatile markets with formal subscriber updates and in particular, more dynamic in-day updates (with charts as needed) at the Trade Log Notes page. I believe you must be at your best and most interactive when most needed, especially during a crisis, not sitting on autopilot hoping no one notices.

When you’ve got a tiger by the tail you may not know exactly how it is going to react but you sure as hell don’t let go! Continue reading "Gold Miners Show The Way" →