Author: Gary Tanashian

Gold Sector Correction Is Maturing

Posted on by Gary Tanashian

Gold Stock Seasonal Average

The HUI Gold Bugs index has over the last 2 decades (encompassing both bull and bear markets) tended to bottom in July per stockcharts.com's data for the index. A seasonal average is not a directive, but it is a (+/-) guide to be factored. Last year gold stocks bottomed in May as we caught what would be a violent upswing. This year I expect the low to be in June or July.

Why Gold?

As the stock market’s broad relief rally lumbers on, drawing the ire of bears that think it should be otherwise, a chorus of dissenting voices is blaming legions of shut-in Millennials and their Robinhood trading accounts for the excess. Maybe that plays a small part.

But here I’ll repeat that the Fed is balls-out printing money (really funny munny), manipulating Treasury and Corporate bonds and stating that it will have virtually no limits in this MMT (I would turn around MMT to call it what it actually is, TMM or Total Market Manipulation). They can give it a fancy name like Modern Monetary Theory but by any other name, it is chicanery and a scam that society will suffer the fallout from someday.

They are cheapening the munny units in order to give the appearance of rising asset (especially stock asset) units. Say it again… “they are cheapening the munny units in order to give the appearance of rising asset units.”

Hence, gold. The shiny rock, the bullion, the anchor to monetary sanity. In this surreal monetary realm, it is something real.

The goal of investing in or trading the gold mining sector is to capitalize on the desperate actions of monetary and fiscal policymakers vs. gold’s stability. Last week we covered a lot of details: Gold Stock Correction and Upcoming Opportunity. No need to repeat the details. People who know how to play this sector have been patiently managing the correction (whether that means selling into it, buying during it, being psychologically prepared for it, etc.) and planning for its end.

We keep a long list of quality miners, explorers, and royalty charts updated every week in NFTRH for this very outcome; an end to the correction and the next phase of gold’s bull market, which it is consolidating now, per this daily futures chart. If the negative RSI divergence does not resolve into a sharp drop soon it is going to then be big-time fuel for what could be a hysterical run-up to the 1940 target and possibly beyond.

Gold had become over-loved by financial refugees in March. They are now buying stocks again.* That is perfect because they should not be aboard the next phase. Their role will again be too knee-jerk and chase later on. Despite the consolidation since March, the daily chart (via TradingView) shows a completely intact situation at the up-trending 50-day average.

gold

Gold/SPX Ratio

I’ll leave you with one final chart. There has been a reason gold has underperformed the stock market since the terror of early spring. That reason is because cyclical asset markets are and have been on a massive sentiment relief rally and sentiment will do what it will do in the short-term. Just remember that simple fact when you see the inevitable rationale like this that certain interests will try to feed you: Here Come the Golden Ghost Stories.

Gold/SPX has done a great job of taking out the excess while remaining intact. 5-year chart…

gold spx ratio

The Not So Great Reset

Lunatics far and wide talk about something called “The Great Reset” but that too is tin foil, whether aspects of it are true or not. It does not help your market management to have that crap in your head. Instead, let’s boil down the picture to the gold sector and realize that as the terror-stricken sentiment of March and April is being reset, so to is the over-enthusiastic sentiment in the gold sector.

The next bull phase should be arriving before long.

* I have been selectively long the stock market since March as well, but very aware of the gathering risks, which I personally and the NFTRH service manage accordingly.

Check back to see my next post!

Best,
Gary Tanashian
nftrh.com

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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" →