The US economy is relatively strong and short rates are rising harder than long rates. This implies a continued ‘risk on’ environment. This is theoretically bad for gold but generally precious metals miners still remain constructive, technically, for a rally at least and a major bottom at best.
I would say it is a bad fundamental environment for the miners except that strangely enough, in this strong economic environment commodities are very weak and under performing gold. Commod’s tend to be positively correlated to the global economy. Okay, so it is an American thing, this economic strength. I suppose it’s a Japanese thing as well. Both have used policy to short term positive effect.
As for commodities…
The crude oil fund continues to drop hard.
The general commodities fund is making new lows.
Gold, while a dud in nominal terms, is hanging in there vs. commodities, especially crude (bottom panel).
So are gold’s negative fundamentals by yield curve measures going to dictate the miners’ fate or or will gold’s ‘real’ price vs. commodities carry the day? The answer comes back to managing downside risk until/unless technicals get above the MA 50’s and more importantly, hold them. Stand alone, the current correction looks normal and is only doing what was projected in yesterday’s update.
As for the broad US markets, risk is still implied to be ‘on’ by the ratios of junk bonds to investment grade…
And the market still has leadership implied by the BKX-SPX ratio…
I am continuing to look around for tradeable stocks from my orientation as a bottom feeder. This would include stocks that have taken bullish flag-like corrections within uptrends. Current longs are bottom feeds MLNX and INFI. So far… meh. TAS was sold today as I ride URG back down. Take some profits, hold some holders.
But my real interest remains in seeing just what we have in the precious metals and just what we have in longevity in the US stock market. Risk remains ‘on’, but with commodities getting killed (nominally and in relation to gold) and precious metals threatening to potentially bottom, one wonders for how long. Or is the precious metals bounce going to be ill fated and it’s stock to da moon? Again, technical parameters on the precious metals and tools like HYG-LQD and BKX-SPX on the stock market will keep us intact.
A final chart, the gold-silver ratio is rising. That should be a ‘risk off’ sign but over the last year it has not been, not for the teflon stock market, which lets everything roll off its back.
The takeaway is that shorting this ‘risk on’ market is risky. But longing it could be just as risky. Cash remains a good position and speaking personally, I am keeping all trades on short leashes.