Gold Miners: Planets Slowly Align

Economic slowdown continues, priming mining stocks...

PRIVATE PAYROLLS were the latest weak number amid slow economic deceleration, writes Gary Tanashian in his Notes from the Rabbit Hole.

We anticipated Goldilocks back in Q4 2022 to Q1 2023 but she has been more intense and longer lasting than I originally expected. Fast forward to Q4 '23 to Q1 '24, and it dawned on me that "Duh, it's an election year" and a mighty divisive and important one at that.

We then factored some of the ways that the Biden administration would try to retain power (poor old Joe wilting at the debate most certainly not among them).

What was/is among those ideas is proposed jiggering of interest rates by the GSEs (government sponsored lending entities), Semiconductor CHIPS and other re-shoring initiatives in an increasingly contentious global economic battlefield of EV/Green initiatives, roads, bridges and whatever else they can get their debt soaked hands on.

Not to mention government hiring, which we've noted every month (except April) has been disproportionately large.

Imagine that! A government slipping deeper into sublime levels of debt, hiring more. Sounds about right.

Here again is the $34 trillion bag of debt that is being leveraged to support GDP:

The point is that the economy has been propped up by various means while embedded Healthcare and Educational services hiring continue and Leisure & Hospitality services continue to boom.

I assume much of this is the beneficiaries of inflation having cashed out some of their equity and livin' it up. But insofar as Payrolls are positive you can bet that the lower-wage services sector is gainfully participating.

ADP's Private Payrolls report reflected another little tick toward economic contraction. Economic contraction is our favored theme for the gold stock sector. The upcoming rally aside, I am not at all convinced the relatively minor correction (within a larger bull market) is over.

But as the economy decelerates, inflation signals fade and gold outdoes most everything else (which may have to wait until Q4 or Q1 of 2025) we will finally have the leverage that most gold bugs believe will never come back to the gold mining sector.

Let's see how economic and market signals progress over the next few months.

In the short-term I believe the gold stock sector is working off the excesses of the first leg of a rally that I think will break the post-2020 consolidation/correction.

In the longer-term, a backdrop not unlike the post-bubble early 1930s may grind into place (prior to the next inflation problem). In the short-term I would think a lot will have to do with whether or not, barring a miracle revival by Joe, the Biden administration simply rolls over and expires or the democrat party pulls a white knight out of its hat to replace him and regain momentum.

If the administration simply expires, the concern for the economy would be whether all or some of the debt funded initiatives noted in the second paragraph would expire as well. If Trump looks imminent, I would not put it past the Democrats to willingly leave him with a giant and deflating mess on his hands.

Meanwhile, we have not beheld the gold mining Macrocosm in a long time, because the inflationary backdrop has been anti-gold mining.

Space is vast and is on no one's particular time frame. But we are in progress.