Macro & Sector Fundamentals
We have been tracking the real fundamentals for gold stocks and the two that were still in question are gold’s ratios vs. stock markets and the yield curve.
Gold vs. stocks is generally constructive but has not yet definitively taken the torch and run with it. The yield curve has been grinding a modest uptrend in 2019 but pulling back lately, and today it held its steepener stance and then some as it exploded higher post-FOMC. That’s a developing positive fundamental to join gold vs. commodities, currencies and the Fed itself, which did nothing to dash any hopes of a rate cut cycle this summer.
FOMC week has a way of bringing some sort of dislocation to the gold sector even when its policy is obviously bullish. Were I a paranoid sort I’d think ‘hit job’, but let’s just stick with the idea that the fundamentals are on track, volatility or not in the short-term and this fundamental backdrop looks better to me than at any point since a brief flicker in Q1 2016 that flamed out by Q2 of that year. Before that we’d have to go all the way back 2009, as the big rallies into the 2011 top were part of a greater inflation trade as everything went up. Those can be big moves in the miners, but they come with degrading fundamentals as cyclical commodities and markets catch the bid relative to gold.
Gold & Silver Seasonal Patterns
Gold’s average seasonal pattern begins to rise in July (it could be early this year because the metal was weaker than its seasonal for much of 2019). Silver tends to bottom in June on average, but it too could be early because it got dope hammered from February to May and greatly under performed its seasonal into the May low.
Gold bugs have been trained to expect the worst or in some corners to expect “the powers that be” to manipulate gold and flog the poor gold bug back into submission. But those ghost stories have been excuses made during times when the fundamentals were not in order and various gold bull promotions fell apart. Now the funda are getting in order and we should not adhere to the training of the bear market as long as that is the case.
I think there is still a decent chance of a post-FOMC hit to the miners and/or metals this week, but the fundamentals have become only firmer (aside from Au/Stocks). As a side note, silver looks good, as if it wants to finally break its downtrend so who knows, maybe this time (FOMC week) it is different.
So trade as you will but realize that we could be at the beginning of something big. If the funda turn I will eat the previous sentence. But if they continue to progress, I’ll only become more strident with a bullish view.