The gold stock correction was readable, and now it is maturing
One tool we used a year ago was the out of whack state of HUI vs. the Gold/SPX ratio. This stuff matters, and when combined with signals like the big ‘Buffett buys a gold stock!’ news along with gold influencer chest thumping, well that goes double. The linked post was literally a year and 2 days ago.
Taking the chart literally, there is much more downside to HUI in order to close the gap. But some points to consider here…
- The 2003-2008 inflationary phase (and gold stock bubble) featured chronic over-valuation despite volatile corrections like the one we see now. If the macro turns for real gold stocks will be shown to be trading at a nice discount.
- Gold is in an extreme positive risk vs. reward to stocks, so maybe some catch up in the ratio could close the gap.
- Or maybe we’ll get an epic downside resolution. It’s all on the table. This last one could come about if a real deflation whiff hits the macro and that would be a massive gold stock buying opportunity.
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