Note for traders: HUI is hitting the bounce target range, but economic data has improved the sector’s fundamentals.
Last week we got a double dose of gold sector fundamentals as ISM (manufacturing) and Payrolls both weakened in August. Today the ISM Services number is making quite a stir, greatly reducing chances for the Fed rate hike in September. After all that jawboning… go figure!
Seriously, it is working out just as initially projected. No meeting in August, but a lot of jawboning and the Jackson Hole event, fixated upon by the media. What are we left with? An economic bounce that is starting to flail and policy makers looking like all talk and no action (including Yellen’s “toolbox” comments about unconventional market supporting policy). In other words, the Fed is looking clownish talking out of all its orifices and that indicates a loss of respect, which indicates declining confidence, which is the biggest, most broad fundamental for gold.
I have noted that I am going to be a stronger holder of the precious metals with a resumption of the fundamental backdrop, which had been consolidating (but not breaking down) for many weeks and even months vs. some markets. Yet the counter cyclical ‘gold vs.’ indicators remained intact even as the indicators and the sector itself, hit support. Here is the still-intact ‘gold vs. stock markets’ multi-index chart as of September 2. It will look better after today’s close.
Remember, it is economic deceleration that sends the clowns into their little clown cars (to take inflationary actions). Inflate or die, if you will. But the gold sector goes first and best against economic deceleration and counter cyclical activity. ISM Services just put us one step closer to a failure of the economic bounce. They are having some trouble instigating an inflation problem, but I believe that still lay out ahead somewhere, as silver is still on its intermediate-term leadership to gold.