The yield curve is fading and the 10yr yield is consolidating. Yields and inflation expectations had been rising with the optimistic ‘Trump trade’. That made the gold sector an also-ran as part of the bullish backdrop. As stated often, the gold sector is not anything special in an overt ‘inflationary growth’ backdrop.
If both of these items drop together that would be the worst case for gold because the implication would be that long-term yields are dropping faster than short-term yields, implying confidence by the bond market that inflation is under control, but at the same time that risk has not gone ‘off’ because people are buying long-term bonds relative to short-term bonds.
The best case for gold and the gold sector would be if yields decline but the Yield Curve rises again. A similar condition in the yield curve existed at the end of 2016, but again, that was under an inflationary backdrop (nominal yields rising).
The gold sector, in its best investment environment, is counter-cyclical and that can include deflationary pressure. Look no further than what happened in Q4 2008; the sector crashed while its fundamentals (and the yield curve) rammed upward in a declining yields environment.
So this again implies a need for the broad stock market to top out, concurrent with a buying opportunity in the precious metals. The sector will go up and it will go down (PDAC and its associated hype are right around the corner and HUI is after all, at key support). Traders will trade but macro fundamentalists should always keep in mind whether or not the real fundamental backdrop is constructive.
As noted in a public post, I covered my short against NUGT and may well continue to trade. But I am going to continue a personal regimen of focusing on the broad market until I get fundamentals I can sink my teeth into on the gold sector. Since the first half of 2016, we have not had those.