Buy Gold Miners! But Now?
Monday, 11/20/2023 09:01
'Bullish now, disaster later' looms for wider stocks...
GOLD MINING stocks are not yet unique within the wider macro, but that does not preclude a move higher by the GDX index,
says Gary Tanashian in his Notes from the Rabbit Hole.
It's just an inkling, but interesting. Here is a visual per a post on X.
With the weakening economic story (as AI robots seemingly run the show) unfolding, real areas like Manufacturing continue to degrade. ISM for October showed continued deceleration and so too did the New York Fed's Empire Manufacturing Survey.
As the inflation story unwinds, and the Fed is indicated to be backed into a less hawkish corner (check out the rapid Fed Funds de-hawking going on at CME Group)...
...the macro turn, the big picture macro turn implied by the profound change in this chart's long-term trend, and other macro indicators, is on track.
That big black, nearly engulfing monthly candle on the 30-year Treasury bond yield sure will look like a reversal if we close November in this state.
That will be personally appreciated for two reasons:
- It will make my guess per the post graphic above look like the product of genius, which it surely was not, and
- It will indicate that we are still on the preferred plans for a macro trend change, potentially of epic (and by most, unexpected) proportions.
All of this is to say that although gold miner stocks jumped with everything else on the weaker-than-expected CPI inflation data in mid-November, that very fact means they are not yet unique.
So I should reel in my ill-titled article from last week. Or more to the point, reel in the article's title: 'Gold Stocks: The Time is Now'.
What I meant, and what I think is clear with a read of the article, is that the time is now as represented by the implications of the big picture chart above. As noted in the article, this would be subject to an interim and likely bull-ending seasonal broad market rally.
"Now" is not today, this minute. Although, I think the odds are that given the developing macro, the gold miners will participate in the seasonal party that got off the ground at the end of October.
The daily chart of GDX shows an imagining of a pattern first noted on Monday, the day before the big pop on CPI Tuesday. In other words, I called the low! How's them for some brazen words? Well, actually I did not call the low. I simply highlighted a pattern that had potential. Here is the chart from that post.
GDX of today is still working on that theoretical pattern. As has been the case forever and a day (in NFTRH analysis, at least) the very key level to take out in order to go bullish for an extended rally, is where the 200-day moving average meets resistance and now what we can call the pattern's neckline.
No breakthrough there, no pattern activation. Break through there and well, activation!
If the pattern activates, the upside target, which we've had on radar for many months, is the gap above 40. That would be quite a trade. But first there is work to do. Take out the SMA 50 (28.32), resistance just above it at 29 and then the SMA 200/neckline combo. If those milestones are met, strap in for a potential hell of a trade.
But consider this: The gold miners are not unique in this macro, especially if they do end the correction from the May double top and rally hard (assuming the broad bull party is ongoing).
What would have made them unique is to take a final and ignominious drop while risk 'on' cyclical stuff had one final party in celebration of the weakening Fed. But if the miners celebrate and go on to our upside target of GDX 40, they will be a 'sell' when the broad markets top, as expected in H1, 2024 (we will refine the analysis as usual along the way, in NFTRH).
The real buy for a long-term bull market could still be out ahead and from much lower levels. But how about this for one scenario among others? Gold stocks rally to a new high for this rally that began a year ago. The broad stock market puts on its final act (and final suck-in of the herds, in progress). Then, as the rapidly devolving inflation situation becomes uncomfortably disinflationary (ie, morphs to a deflation scare) the gold miners get sold down. We have various downside support objectives just as we have the upside GDX target of 40+.
The real art; the real separation of the macro players from the pretenders, could be well out in 2024. But if the gold stock sector does rally here in Q4 (as implied by the seasonal averages), what's wrong with some outstanding profits prior to the necessary H1 2024 risk management implied by this forward macro view?
Meanwhile, it appears to be macro party season with the herds being tempted back in. Herds? Frogs! In a nice warm pot, swimming and resting their little heads over the Fed hawk anxieties of the past. The setup for bullish now, disaster later is compelling.
Here's the circus ringleader here.
I am playing it via quality (only) gold stocks (per NFTRH weekly reports) but also through various other non-unique sectors that make sense as the US Dollar drops due to a lack of fundamental support (Fed policy).
Later, in 2024, I expect to have whittled down the scope to just the best gold mining stocks I can find, some Junior/Exploration specs, and short-term Treasury bonds (after the Fed eventually flips dovish and begins backing off its elevated Funds Rate, which has been driving nice income on cash).
But first, a hard sell in the miners may come about before the buy for the long-term that will be missed by most.
So you see, "now" means 'now', as in the time of a macro change, which takes months and years. The change already began, after all, 1.5 years ago when the 30 year Treasury yield above, smashed through the formerly limiting moving averages.
Gold stocks? The time is now (to prove a rally can come about) and the time is upcoming within the macro changes already in progress for a long and improbable (to most) investment phase.
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