Gold Stocks Acting As They Should During Market Stress

The macro has moved through a time of moderately rising inflationary concerns when economies were cycling up, many commodities were firm and risk was ‘on’. Contrary to the views of inflation-oriented gold bugs, that was not the time to buy gold stocks.

As I have belabored again and again, the right time is when the inflation view is on the outs, gold is rising vs. stock markets, the economy is in question, risks of a steepening yield curve take center stage (the flattening is so mature now that steepening will be a clear and present risk moving forward) and by extension of all of those conditions, confidence declines.

Well?…

 

In short, the improving sector and macro fundamentals I’ve been writing about for a few months now continue to slam home as the cyclical world pivots counter-cyclical. And what do you know? Gold stocks are reacting as they should. Well, it’s about time, guys!

The technicals had already made some constructive moves as noted in an NFTRH subscriber update on December 4th. The update concluded as follows…

If the precious metals continue bullish in the very short-term the initial targets for all items will be the declining 200 day averages. If the macro fundamentals are proper at such time (and stock markets weaken again) we can improve the view. If not, then that will likely be a sell area, assuming a rally gets going here.

Chief among the sector’s macro fundamentals is the state of gold vs. stock markets. The Gold/SPX ratio has been rising and that is very positive. But for the herds who’ve been taught to revile gold to turn to gold as a refuge, said herds need to be set in motion… by fear (of losing their capital). 

Here is the comparison of SPX and HUI from 2000 that we have been using as a template for the current situation. Very simply, when the S&P 500 bounced and failed into its initial bear market signal HUI bottomed and began its big bull market. The yellow shaded zone tells the story of the stock bull market’s failure (in bouncing to test its Death Cross of the time) and the gold stock sector’s brand new bull in 2000.

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