NFTRH; Let’s talk about the Gold Miners (w/ macro funda/valuation charts)

Folks, there is nothing happening now that does not ring a bullish alarm to me other than the nominal prices of the indexes and ETFs. You may recall that I started off the correction from the summer highs back in September/October talking about a potential pullback to 170-180 to test support and fill a gap all at the same time. You may also recall I had to admit I was wrong about that projection as Huey refused to drop and instead ground upward to a new cycle high.

That was amid the Q4 2019 ‘inflation trade’ bounce that I did not like as a fundamental backdrop for the gold miners (which so often run contrary to their fundamentals). The inflationist bugs drive the gold stocks (against their proper fundamentals) and so often tank the gold miners WITH their proper fundamentals, which are becoming stellar, as they sell en masse (“what, no inflation?!?!”) during this deflationary fear fest.

People have asked me ‘when will you pound the table?’ and that is something I almost never do. But in Q4 2008 I pounded the table, bought HUI 250, got clobbered (while holding those buys) and then pounded the table again at HUI 150 where mercifully, the inflationist bugs had finally been sold out.

I have made a big deal about keeping high cash levels and so today while modestly negative to the tune of 3.5% overall so far this year I am able to concentrate on trying to figure out the coming buy (and likely table pounder) now that the miners appear to be failing the 200 day averages. It is to the point where I am getting clobbered on the individual names I have chosen to hold, but if this is anywhere near the epic opportunity Q4 ’08 was, I will greedily and significantly add to them. At this point I hope they keep dropping.

This is nothing like that crash because the gold stocks are coming out of a bear market, not from a place of bloated over valuation, as in 2008. Once again, some macro funda/valuation pictures for perspective.

At some point this will matter. Miners use fuel. A lot of it to dig, transport and process their product. The oil adjusted gold price is way ahead of the miner index. Here is HUI lagging the Gold/Oil ratio (monthly chart).

At some point this will matter too. The miners may or may not need to pull back more in relation to the Gold/SPX ratio. But for the same reason we had caution when Huey got out of whack to the upside too far ahead of Gold/SPX, as in 2016, we’d (well, I’d) have greed and anticipation if it does so to the downside (monthly chart).

Finally, here is a weekly chart of the Gold/SPX ratio leading the HUI/SPX ratio. Let the gold bugs grouse about the miners not leading gold. All it means is that value is being presented once again. Gold/SPX would appear to be leading HUI/SPX up (with some patience, as is always needed in this sector).

The process is such that the fundamentals improve greatly often when the mining stocks are getting discarded for fear of deflation. But deflation or the threat of it drives gold up in relation to everything else (lately except Treasury bonds, which as an investment are a complete joke at this point).

Unless HUI gets its act together and quickly takes back the 200 day average, I am going to be ready for, if not plan for a re-visit to the 170-180 area, which may even be a table pounder. What has worked in the past is to buy heavy the wipe outs as fundamentals improve. When there is not an inflationista in sight.