It’s simple. Corona relief, Central Bank policy and the recently beaten down sentiment profile are either going to bring lasting relief and joy to the land or they are not. If they do, and the macro reflation trades resume (along with inflation expectations) the gold sector would likely go back to being ‘just another sector’ or even an also-ran. If they don’t and a stock correction resumes (NDX is making a new all-time high today, so let’s make no such assumptions) the counter-cyclical sector will likely recover strongly as a unique class.
All along the key to setting the gold sector free has been to see an end to the broad stock rally, especially in the US (or at least see gold conclusively resume its out performance to stock markets). Today shows why balance (either mentally or functionally) has thus far been recommended for gold bugs and caution about shorting the stock market without setups has been recommended for would-be bears.
As to the daily HUI chart, it is in a bullish Cup & Handle, it’s trends are up and it is probing the support zone once again. With today’s downside the handle is actually starting to make more sense to me because now we can conjure a neat bull flag/handle/downtrend as opposed to what had been a sloppy one. If this remains a bullish situation the handle’s job will one day be looked back upon as having culled out the weak hands, momos, not to mention inflationists before the next rally.
Today is a perfect example of why I’ve remained balanced and not leaned into the precious metals bull view (and why quite frankly, I had to slap my hand away from the button before I could take a short on the US stock market on yesterday’s bounce). Cards have not been played yet.
As a TA update on HUI, let’s note that above 220 it’s on a bullish plan to the Cup & Handle scenario. Below 220 the situation would become more concerning, technically. An extreme pullback to the SMA 200 around 205 would be uncomfortable for unprotected or unprepared bugs but would not break the index, and drop below the October low (198.88) would break the index. But until such time as that would happen, those up trends in the moving averages and lateral support are running the show. Huey is fully intact.
Back on the macro funda, it will be important to determine whether this is just a relief burst or something more. A well rounded gold bug and especially would-be market bear should at least be asking ‘what the hell is NDX doing at an all-time high, and what does it mean (i.e. real or Memorex)?’.