For we gold sector bulls at least, this is important – although probably early – signaling.
The gold price is still under pressure. Today it is testing the 50 day moving average. Should that break down the next support is in the low 1800s. That’s fine. We accounted for this, beginning weeks ago.
But that is not what is important moving forward. This is.
The Gold/SPX ratio is rising today, just as it should during pervasive financial market stress. As a side note, gold is also rising vs. oil and broader commodities. Those are important factors as well.
Now recall that the sector (gold stocks) often corrects while its fundamental indicators are improving. It’s an exercise in patience as it plays out. But also confidence, because had the ratio broken down we’d have called bear on the sector.
I symbolize it as the running of the inflation bugs. But whatever it is, the gold stock sector is getting caught up in the selling even as Gold/Stocks and Gold/Commodities ratios rise (as they should in a positive fundamental environment for the sector). Thus far this is the beginning of a smaller version of the epic opportunity in Q4 2008, not to mention the March 2020 crash.
Look at what Gold/SPX did in February and March. We can see now how important it was for Gold/SPX to hold the higher low that it did last week. As long as this continues to be the case, the sector is on a buying opportunity. As HUI and several stocks lose their 50 day averages (so far today) and threaten the August lows, patience as a buyer would probably be a good thing. However, the macro is painting the picture a would-be buyer would like to see.
