{"id":55048,"date":"2021-07-31T11:43:54","date_gmt":"2021-07-31T15:43:54","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=55048"},"modified":"2021-07-31T11:43:54","modified_gmt":"2021-07-31T15:43:54","slug":"hui-technical-status-and-gold-stock-fundamentals","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2021\/07\/hui-technical-status-and-gold-stock-fundamentals\/","title":{"rendered":"HUI Technical Status And Gold Stock Fundamentals"},"content":{"rendered":"

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<\/a>\u00a0and at\u00a0NFTRH.com<\/a> over the years). Increasing the view that ole\u2019 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:\u00a0Buffett Buys a Gold Stock!<\/a><\/p>\n

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<\/em>\u00a0do (see below).<\/p>\n

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:\u00a0Buffett Pukes a Gold Stock!<\/a><\/p>\n

The rally terminated at a key resistance level (as plotted well ahead of time as a caution zone in\u00a0NFTRH<\/a>) 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.<\/p>\n

That low came off of positive RSI and MACD divergences and here we are, on the bounce with the channel\u2019s upper line, the down-sloping moving averages, and a clear lateral resistance area all taunting\u2026 \u201c\u2018C\u2019mon Huey, we dare<\/em>\u00a0you!\u201d<\/p>\n

\"hui<\/a><\/p>\n

The reason I keep a close watch on gold stocks is not due to a masochistic tendency but instead, it is due to the need for balance in a leveraged macro (for some compelling charts and data see this article highlighting Crescat Capital\u2019s macro viewpoints<\/a>). When the macro falls apart there will be a loss of liquidity and terrible stress on the inflated financial system and economy that it pumps. That would be counter-cyclicality the likes of which gold is made for. By extension, the miners would leverage that counter-cyclicality, fundamentally.<\/p>\n

I am not your average gold bug (those who know me heard thinking aloud in unison \u2018yeah, we know\u2019) and\u00a0NFTRH<\/a>\u00a0is not a gold bug rag; it\u2019s a fully rounded financial market manager. When I hear inflation I think long and hard about the gold miners, and not in a positive way. My thesis boils down to this; if the gold stocks are going to rally during an overtly inflationary phase they will probably do it as part of a bubble, similar to the 2003-2008 period when all sorts of commodities, including mining cost input commodities and materials, out-performed the miners\u2019 product, gold, and yet HUI rallied well over 300% to strenuous over-valuation.<\/p>\n

Enter again, the Macrocosm.<\/p>\n

\"\"<\/a><\/p>\n

With a positive in play for gold (not necessarily the miners) as Treasury yields remain below the inflation rate (i.e. real yields are negative) let\u2019s review the still-poor sector and macro fundamental backdrop for gold miners. By \u2018sector\u2019 fundamental I mean directly affecting gold mining bottom line execution. By \u2018macro\u2019 fundamental I mean macro signaling that affects investors\u2019 perception of gold stocks.<\/p>\n

Macrocosm Status by the size (importance) of the planets<\/strong><\/p>\n