About Those Gold Fundamentals

Ref. Steve Saville’s post at Biiwii this morning…

Gold: Bearish Fundamentals, Bullish Sentiment

The fundamental stew for gold, like lots of other market indicators, has a lot cross-talk, noise and general volatility built in because the fundamentals for gold are the very macro markets subject to all this volatility. So when Steve noted the following in July…

Gold’s True Fundamentals Turn Bullish

gold fundamentals

…we took it with a grain of salt, because the big funda considerations I follow – like SPX/Gold, Yield Curve, etc. – were firmly bearish. Those of course are two of our 3 Amigos and they were and still are very antagonistic of gold, not to mention still-friendly to the risk ‘on’ world.

Here is Steve’s updated chart from today’s post. The funda spike appears to have been a knee jerk reaction as the gold price turned out to be right, not the indicator.

The fundamentals for gold and especially gold stocks will not be in place until the stock market stops rising in gold terms (that ratio is wildly overbought, but you know what they say about markets and irrationality) and the Yield Curve ceases flattening and/or turns up. Both of these conditions were noted most recently in NFTRH 512.

Risk vs. Reward is a whole other matter. But in Q4 2008 I was buying gold stocks amid rapidly improving fundamentals (like gold’s rocket launch in ratio to stocks and commodities) as USD and Treasury bonds got bid up big time amid a risk ‘off’ liquidity situation. I bought at HUI support (250) and had my hands severed by the falling knives. I then had them stitched back on and bought more at HUI 150, which ended up being the bottom. There was a lot of paper loss in the interim on the way to big future gains.

This time, amid a not yet turned macro backdrop I am trying to be very slow and patient. I like my hands.

But with the sentiment backdrop completely bleak for gold bugs a turn in the fundamentals would see those hands pounding a table. Until then, it’s slow and steady with the indicators at hand.

Here is the Precious Metals summary from 512’s Wrap Up summary…

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