Based on two emails received and on my own long-held (and expressed) view that a real bull market in the gold sector can and probably will be ground out against a firm USD backdrop, I wanted to delineate the basis of the current precious metals rally from the rest of what would be an anti-USD ‘inflation trade’.
I have written and asked you to consider volumes on this subject so it probably bears no repeat. But a real gold sector bull phase would benefit from gold rising vs. stock markets, commodities and what I used to call human hopes for prosperity. The reason I used to call it that and have not done so in years is because since 2012 human hopes for prosperity have been just fine thank you, compliments of iron clad confidence in the Federal Reserve and central banking in general.
So while I think there is a good chance the gold sector could get caught up in the web if USD does find support here and anti-USD items turn down, let’s make the point clear again that the best investment environment in the gold sector is when the economy is in contraction and gold is out performing associated asset markets. In that environment, as risk goes off, USD can be strong as it receives liquidity from fleeing asset market participants (just as gold would).
That would actually be the ‘new bull market’ scenario as opposed to an ‘inflation trade’ targeting the HUI 150’s. Either way, the premise of the previous post still holds. It may be wise to see what USD does as markets react emotionally in the short-term, which is a different animal than the big picture macro.
I realize the work can be confusing, so please let me know (gt @ biiwii.com) if I can answer any questions. Also, as noted to one subscriber who emailed, I am watching for a daily (and preferably weekly) close by USD above or below the breakdown point. That is to avoid in-day whipsaws.