CAT, Durable Goods, Stock Market and the Case for Gold Mining

Today is notable because the economic data continue to decelerate (Durable Goods declined and Caterpillar layoff announcement), the stock market is doing what we expected and the gold sector is going the opposite way, as it should in its best fundamental case.  This has not always been the case lately, with the gold sector often in tow with the stock market.

Let’s see how things are shaping up.  We have clearly laid out a US stock market plan, so we’ll skip that for now.  As for the gold sector…

  • Yield spreads have not changed and are not yet supportive, though they may be bottoming.
  • Gold vs. Commodities (and in particular, oil) is turning up again.  This is in (sector fundamental) support of our plan for Q3 operating numbers to have improved, when Q reporting starts in October.
  • Anecdotally, we can feel confidence waning and for all the reasons put forth to date (too varied for an update) this is key to a real turn in the counter-cyclical gold sector.  In that regard…
  • This weekly chart of GLD vs. SPY shows improvement and GLD vs. HEDJ (Euro-hedged European stocks) is even better.  Indeed, Gold-Europe looks like a real move.  Attention European subscribers.

gld and spy

gld and hedj

GDX is bouncing to fill a gap.

gdxGDXJ is doing the same, but from a better position above the SMA 50 (below the EMA 50).

gdxjBottom Line

Market activity is in line with the fundamental case for the counter-cyclical gold mining sector, and in line with our plan for a continued stock market correction (to a test of the August lows, at least).

Obviously, gold sector technicals, aside from certain items (Klondex, Premier, Kirkland Lake, McEwen, Lake Shore spring to mind), still offer little in the way of positives.  But if things proceed on this course, traders should play bounces and do what they do, but those looking to accumulate and position should be aware that the case for sector fundamentals is still improving and that more people could start becoming aware of this in October.  Also, as per the GLD-HEDJ chart above, macro funda stand to gain as well if the environment remains negative and point toward a counter-cyclical environment.

A point to consider though is that if the stock market were to fail an August retest, the selling pressure could catch the miners in its web as well.  It’s just something to be aware of as a possibility going forward.  So patience and perspective are always good things.