NFTRH; Extensive Update on Gold Stocks/PM Sector

Gold and silver were updated in a public post yesterday. There has not been much change since then. Let’s now focus on some sector macro fundamentals, leading indicators and the HUI index.

The indicator I consider most important is still fine and constructive.

Followed closely by gold vs. global equities. Even if gold were to fail vs. stock markets short-term and drop to the 200 day average (lower blue arrows) its big picture would be intact, and it would likely be a buying opportunity in gold stocks.

Gold/Commodities is still fully intact. Same situation here. It’s around the SMA 50, but even with a more severe pullback the trend is up.

Gold/Global Currency proxy is basically in the same situation. A bullish gold view does not need to worry about the big picture, although it is still struggling to put the short-term correction view to bed.

Silver/Gold continues to be constructive not only for the precious metals, but also for a wider inflation trade out ahead. The important caveat here continues to be the word “constructive” because the long-term chart of Silver/Gold has not yet broken its downtrend.

HUI/Gold ratio (using GLD to get an in-day view of this one) has the same ugly look as nominal HUI and has not taken out the SMA 50. It’s an indicator still in correction mode.

As for HUI, the daily chart has stopped at the SMA 50. That is the marker that we projected a possible bounce to and wouldn’t you know, there it is. It has filled a gap and if I am going to be an impartial TA (which I am) the chart tells me it is vulnerable here. I also see a lot of individual stocks – including some of my own – in similar situations. We are at the point where Huey needs to compromise the correction by climbing above the SMA 50 or remain vulnerable.

The weekly chart advises two things. HUI has already hit a notable support level and held it thus far, but also that if the neckline on the daily chart above should give way we’re probably going to test the 180 area and/or the SMA 200 (currently coinciding with the 62% Fib around 182) after all. That could coincide with a test of the 200 day averages by some or all of the ratio charts at the beginning of the update.

Here is a look at the Gold/Oil ratio (weekly chart) still rising while HUI corrects. That is what we wanted to see, as Huey’s price got ahead of its fundamental. Could be more work to do here though.

Finally, the (monthly) chart that was my main concern when noting a couple months ago that the gold stock sector had gotten ahead of itself. Gold/SPX is still fine, but the chart thinks that HUI could have more work to do to get in line with this macro indicator.

Bottom Line

We noted last week that a bounce was likely and that it could get to the 50 day moving averages. HUI and many gold stocks are at or below their SMA 50, while some got above but are pulling back below it today and a few others are still trying to hold the SMA 50. Gold and silver are above the SMA 50s.

The fundamentals are in line and would have to take massive hits to go out of line, but the sector needed a significant correction to fix the excesses. The correction is not yet indicated to be over and it will not conclusively be over until the sector generally makes higher highs to the September high. But the first inkling would be a firm takeout of the 50 day averages, and that is still very much in question.

It’s a process and what I am focused on is a big opportunity, not these little guessing games that go on during a correction. If the correction ends here and now, that’s fine. I’ll try to stay nimble with the hedging and whatnot. But the real opportunity we might look ahead to is HUI in the 170-182 range while the sector’s fundamentals remain intact. I want to pound a table, not nickel/dime you to death with updates like this. But we take what the market gives us, eh?