NFTRH; Gold Sector Review

There is no denying the cautious tone of our updates about the gold stock sector this week.  Sometimes they appear prescient and then there are other times, like today.  Yesterday’s update stated:

“Considering the gap in the 24′s I’d be careful about thinking this bounce will reverse the corrective activity.  But nonetheless, exceeding the red resistance area would have to start that conversation.”

gdx.60min

So we are starting that conversation, as GDX pushes through the noted resistance zone.  But a problem is that this is coming on a day of a war related plane crash highlighted in the media, along with a lot of sabre rattling involving Russia, Ukraine and to a degree, the US.

In other words the stimulus is geopolitical and that is not a fundamental underpinning for gold, much less silver.  So this is where balance – which is always recommended – comes into play.  If GDX falls back below 26.50 look for resumed corrective activity (pending any new media flashes on the geo front of course).  If it holds above the red lines, we need to consider its potential for ending the thus far mini correction.

The precious metals are going to get where they are going, but this type of news is not what is going to take them there longer-term.  If the rise in gold is real, then so be it.  I own the stuff long-term.  If it is another hype fueled emotional pop, it’s price would likely be reversed when the hysterics wind down.

As for the actual fundamentals that matter, there are a couple worth considering that are making positive moves.  First, junk bonds are in the tank nominally (and possibly breaking a long-term trend) and are down very hard vs. Treasury and investment grade bonds.  This is risk off behavior and it has been in process since before Ukraine started becoming acute again.  Secondly, the banks have been weak vs. the broad stock market (SPX) lately.

Since gold is squarely a risk ‘off’ asset now, these recent trends are positive.  Here we recall the potential for gold vs. CCI to have bottomed at projected point 4 above point 2 on the weekly chart of the ‘real’ price of gold.  This is the ultimate chart of gold’s (and the miners’) fundamental underpinnings in that it is a road map to a big picture economic counter cycle (with point 3 to 4 having been a growth cycle within the contraction).

au.cci

While I have you here, I’d like to dial out from the 60 min. to the monthly view of HUI.

hui.mo

The reminder is that we have been managing the pullback within a still-good bottoming process.  Some people should be tuning out such updates or using them to plot buying opportunities.  The noise of geopolitics is just what it is, a short-term stimulus.  It will fade and the gold stocks will either resume their correction or they will not.  But the above chart puts the ultimate point of reference on events… the sector appears to be bottoming on the big picture.

I do not want to become a play-by-play caller in an over stimulated media environment.  Enough has been put out on what was projected as and has thus far been a short-term pullback.  Any specific questions are always welcome.