Let’s remember a theoretically important aspect of the gold sector investment case… economic contraction, which would drive up the real price of gold as measured in commodities.
Durable Goods orders came in weaker than expected this morning, joining ‘jobs’ and ISM as recent signs of a deceleration in the inflated economy.
It is notable that the gold sector has gotten contrary to the stuff that is positively correlated to the economy. Gold is not copper, oil or hogs. It is gold and it is generally counter cyclical, unlike those other things.
Above is the status of the HUI bear flag. Here is what was noted in yesterday morning’s update:
“Then the HUI low was 262.07 on Friday’s gap fill/test after the initial upward burst. This needs to hold to support the bull case. As long as the gold stocks remain above that level, the targets remain 300 and 320. One might use 262 or just below as a ‘stop loss’ to this trade/investment opportunity.”
HUI held that level yesterday and is popping this morning. So much so that I have no choice but to use ‘amateur hour’ to buy back a few things because when I see yet another macro fundamental like ‘Durables’ come in line, I am aware of the risk of not being in. The market owes me nothing due to all the risk management to this point.
A trader can alternatively look very smart or very dumb. Managing risk has been very smart over the last few months but given my macro fundamental orientation, I will continue poking the bull case at the first sign of any new positives, like Durables.
As for the chart, it is still a potential bear flag. The price needs to break above 280 and declining EMA 10 – and hold there – to invalidate the flag. Meanwhile, let’s see how volume and buying conviction look today. We should look at this as a bear flag until it proves it is not.
But the point of the update is that another macro fundamental came in pointing toward economic contraction, which helps the stock market bear case and potentially, the gold and gold miner bull case as well from a fundamental perspective.