Gold Mining Stocks: Nothing Special, Yet
Friday, 8/11/2023 09:01
Fade gold-stock cheerleaders in the current macro...
THEY are at it again,
warns Gary Tanashian in his Notes from the Rabbit Hole.
Articles catching on to the US Dollar breakdown are appearing in the smaller media (eg, blogs and websites that are 'perma' pro-gold, anti-USD, anti-stock market, pro-financial Armageddon, pro-emotional 'analysis'), where the thickest bias and dogmatic views are aimed at less experienced investors through emotion.
Yes, gold is bullish. It has actually been bullish on the big picture since it took out $1378 (what NFTRH had targeted as the "bull gateway") back in 2019. That began the next leg of the ongoing bull market that began in 2001.
But, friends, gold moves slowly. And why shouldn't it? Bubbles, like the grand one that is still alive in stocks, move faster. They move faster on the upside and boy do they move fast when they burst.
A post on NFTRH in 2020 showed gold's $1378 gateway having been taken out, the resulting rise to make a higher right side of the bullish Cup, and projected the need for a corrective handle to be built. Accompanying the chart in that post:
"Gold is fine. Don't sweat the correction. Well, if you are a momo who got on because you listened to the perma-pompoms, then you should sweat it. You need to sweat it, because the gold price needs you gone, sanitized, cleaned and buffed."
A subsequent 2 years of handle-making (longer and sloppier than I'd originally projected) sanitized the situation, alright.
But today is not the day to be listening to gold stock perma-pompoms in a vacuum, because it is not just gold and gold stocks that are bullish in the face of the US Dollar breakdown. It is US and global stock markets (the DJIA, for example, targets a new all-time high) and increasingly, as per our recent projections, the prospect of the commodity complex (CRB index) finally shaking off its year-long downtrend.
CRB has not quite done that yet, but if the USD breakdown is real a significant rally can erupt in broad commodities as well.
One day gold mining stocks will be pre-eminent (in my opinion), but that day is not yet, not today. Gold stocks are bullish. But the same can be said for broad stocks and – if our thesis about a significant anti-USD trade is correct – commodities of most kinds.
The best fundamental backdrop for the gold mining industry is counter-cyclical. It is when things fall apart (and bubbles burst). It is amid deflationary pressure and asset market liquidation, when gold will hold its value relative to stocks, commodities and just about anything else that's not nailed down (like the heavy anchor of monetary stability, insurance and value).
As the 2020 quote above states, "gold is fine". So ignore the cheerleaders. (I know it is hard, because they are everywhere and they sure are persuasive.)
Microcosms of a real post-bubble environment happened in 2000, 2008 and 2020, to varying degrees. As bubbles burst and the damage was summarily papered over by heroic (and ultimately one day, destructive) acts by central monetary planning authorities like the US Federal Reserve and debt spending fiscal planning authorities like the US government. From NFTRH 766 last month, which was more conversational than usual:
"The Continuum Broke: Which leads us again to one of the main reasons we'd even consider a genuine 'post-bubble' now as opposed to previous decades. Once again, I, a man who stares at charts, am just awe struck by the profound look of the Continuum chart of the 30 year Treasury yield. How orderly the Continuum was when we used to have those downtrending moving averages and rally ending arrows painted red. How orderly, how systematic. But last year? Rebellion! Something broke and since that moment it has been our job to consider what broke and how it may affect the forward macro."
As noted above, the 2 Horsemen of the Sound Money Apocalypse (that has run for decades) have been monetary (central bank) and fiscal (government) policy, always at the ready to be deployed as needed against the markets' natural cycles in the age of corporate, market and insofar as the rich have gotten exponentially richer due to this macro rigging, selective social...socialism.
If you disagree with me that our markets are the product of socialism (or worse, communist style central planning), please clue me in as to how I am wrong. When government or government associated and all powerful entities are able to regulate, control how the money is created and where it goes, how is that not socialism as opposed to productive endeavor, which feeds a sounder, less dysfunctional, more equitable economy and financial system?
Yes, you are reading an idealist right now. But as you know I am also very cold and ruthless in not falling for my own ideals until/unless the time comes for a phase change.
Which is exactly why I respect the ongoing stock bubble until it is no longer ongoing. It did not burst in 2000, 2008 or 2020. It was sustained by policy. Today on a bigger picture (beyond this moment) we have a chance in the years, maybe even months ahead for a major phase change due to the implications of the Continuum and other indicators we keep track of.
But I have digressed. The point is that gold stocks will not be unique until after the 2 Horsemen of a different kind, the 2 Horsemen of the Macro Apocalypse ride again and when the time is right, will seek to wreck the bubble again. This time perhaps for good, if we are looking at a post-bubble future.
Those two horsemen are the US Dollar accompanied by the Gold/Silver ratio. With silver leading gold today it is a positive signal for the precious metals, commodities and many stock sectors and global regions. But when gold assumes control over its peppy little brother and the USD bottoms (it is not yet even close to its potential downside targets) within its ongoing larger bull market, the implications of macro events like that shown in the chart above may well bring on a real post-bubble macro.
It will be on the ensuing liquidation that gold stocks may be bought with greed and with a unique perspective for a long bull market. Meanwhile, bullish is bullish, we have the next upside targets established for GDX (a daily chart of which we've used for months now to guide us into rallies, corrections, rallies, etc) and what looks like the next near-term leg up can be enjoyed. But don't forget there are other assets and markets out there and also don't get hoodwinked into thinking the gold mining sector is anything special right now. It's not.
When the likes of the components of this chart of gold vs. cyclical, risk 'on' and inflation sensitive markets turn up for real and for established trends, then we're talking unique, baby.
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