The Longer-Term Outlook

I finally dipped my toe into the Gold Miners. I am probably a bit late if you look at a daily chart, but looking at the weekly chart the trend could just be beginning. The stop out is the horizontal support, and the point where I add more is when the downtrend line is clearly broken to the upside.

I like the Gold Miners best when they are doing well while the general stock market is also doing well. That hasn't been the case for a long time so I am not 100% on board yet

However, I also like the Gold Miners when Silver is outperforming Gold, and we saw that happen this week, and it looks somewhat convincing...keeping in mind that it is only one week of course.

The out performance of Silver is what the chart below is showing.

What's driving gold higher?

Is it loosening monetary statements from the Fed with a tightening job market? If you haven't heard, the number of jobs surged on Friday while at the same time the Fed announced that they are still watching the data closely and are prepared to change course if needed.

It is a rare combination to have a dovish Fed statement on the same day as the unemployment rate is declared at 3.9%. Okay, so that certainly helped gold on Friday because it initially sold off on the employment news but then rallied on the Fed news.

But I think the real driver for gold is some recent strength in the M2 money supply as shown in the bottom panel of the chart below. Gold, and the Gold Miners, take off when this M2 rate-of-change points upwards like this. Check out December-2015 for a similar scenario.

Okay, forgetting about gold for a minute, what's our most important indicator at the moment? Oh yeah, that is the ECRI Index falling below the critical -5 level where really bad things can potentially happen in the stock market.

My take on the market at the moment is that because the news cycle is improving while stocks are dramatically oversold, we have the potential for a decent medium-term rally. And then there is the much improving M2 money supply which should also provide a nice boost to stocks.

After the market rallies, what then?

No way to know for sure, but the best of the indicators will help tell the story such as the ECRI. If it continues to move lower, then the coming rally will be a selling opportunity. But if the ECRI starts to move higher in a convincing fashion, I will be redeploying cash into stocks.

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Disclaimer: I am not a registered investment advisor. My comments above reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, ...

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