We began the week with an update that noted the week’s economic calendar and in particular, the ISM (which came in at a still-strong 58.7% PMI) and today’s November Employment report (+321,000). Some economy watchers had expected a catch up move in November after a weaker than expected October and that is exactly what we got.
In that update we noted the gold-mining positive fundamental development of gold out performing crude oil and the volatility likely to be induced by the Swiss gold vote. But we also noted the following…
“But none of this is applicable beyond a potential trading environment until such time as economic data start a trend toward deceleration. The gold sector in that event would be set up as not only the most hated sector in the world (contrarian bullish) but also a value given improving fundamentals (ref. Q4, 2008).”
The US economy is still strong by the data and gold bugs should not fight this. Our thesis on a future bullish gold mining sector has little to do with inflation, does not worry about a strong US dollar but most definitely does need economic deceleration.
The first inkling of deceleration would be the opposite of what happened in late 2012 and early 2013. The progression then was increasing Semiconductor equipment book-to-bill (b2b) ratio → improving manufacturing (ISM) → improving employment → improving economy/GDP, etc. and only a reversal of that trend is going to change the macro trend.
Today’s release was a negative for the gold sector and theoretically a positive for stocks and the potential for an ‘as good as it gets’ blow off scenario not unlike 2000 (ref. bullish Semiconductors and Biotechs for momentum leaders).
This makes the next Semi b2b (should be released on or about Dec. 20) very interesting. On the short-term things are bullish all around and the stock market upside blow off scenario is still very much alive, especially if gold were to go back in the dumper. That would be for people to play as they see fit.
But looking out on the horizon, if divergences continue to build (as an example, if the b2b were to continue declining) we can also build a bear case, slowly and routinely as long as the data indicates to do so.
But for now all trends are up, some back-looking data (like ‘jobs’) are in ‘as good as it gets’ mode. We should respect the bullish momentum dynamics in play and keep an eye on forward-looking data like the b2b, ISM, etc. Also, the seasonal average starts to get bullish in the second half of December. This week’s economic data did little to hurt that possibility.
On the contrary side, the market could get some jitters about a Straw Man known as ‘sooner than expected interest rate hikes’ off of this news. We would continue to call that a buying opportunity in stocks if it happens because the Fed would have little pressure to end ZIRP with inflationary pressures non-existent.
All subject to revision as data like the important and forward-looking Semi b2b come in.