NFTRH+; gold mining fundamentals & HUI technical situation

As the macro shifts in favor of gold (rising vs. stocks, industrial metals, silver, most global currencies) and risk in the broad markets goes firmly ‘off’, the main holdout continues to be mining cost driver crude oil/energy.

Combine this with the fact that some of the hardest declines in gold stocks come when other markets are liquidating, we have valid reasons for the current gold stock correction even as gold has thus far held our best support target at 1830.

As an example, Q4 2008 saw the miners taking an epic crash as the inflationists ran for the exits at the exact time that the fundamentals were screaming into place. So even when gold eventually overtakes crude oil, there could – theoretically at least – be pressure on the miners because “OMG, deflation is coming!”

A deflationary environment is what is actually needed to be a gold stock bull. Not outright world ending deflation perhaps, but a deflationary episode that sends the herds into USD, Treasury bonds and if past is prologue, then gold.

Gold is holding 1830 so far. But HUI has failed the SMA 200, which was our tolerance marker for keeping the handle breakout valid. From NFTRH 704:

As to the chart, if HUI is going to put on a bounce or a real bull market rally (it needs to clear the 310 area resistance for that) it should hold the area of the SMA 200 (266) or else our pom poms will need to be kept in the locker for a later time.

Here is the updated daily chart showing Huey at 254.

And the weekly, showing the handle breakout failure.

This is a time of opportunity, as was Q4 2008. I don’t think the miners will crash as badly as they did then (if they even crash at all)* because the ongoing correction (after the handle failed) that began in mid-2020 has bled plenty of that infamous gold bug shall we say ‘enthusiasm’ out of the picture. If the inflationistas have infected gold stocks (they have to some degree) they have infected other markets worse (like cyclical commodities and resources), as evidenced by those markets’ big run with the inflation trades.

If I am right about Treasury yields having topped into a coming episode of deflationary pressure, the miners will set up to be a buy at some point (we’ll certainly be on watch). It could be at HUI 240 per the weekly chart’s lateral support, or it could be lower if the macro out and out crashes. If by some chance the situation reverses to bullish in the interim we’ll note that as well (HUI needs to clear 266 with authority to even begin to expect that).

But the most important point I want to make is that (using my favorite example) in Q4 2008 my hands were bloodied by catching these falling knives (first at 250 and then with the powder I had left, the bottom at 150). It was an epic trade and it was under the threat of deflation. Don’t fall for any inflationistas bitching about why gold stocks are dropping. They are dropping because a majority of gold bugs are inflation bugs and the inflation trades are liquidating.

Last inflated man standing is Energy and he could be stubborn. But the macro is turning and if we have a lot of patience the opportunity could be something special.

Please leave a comment if you would like further clarification on anything or have input to add.

* Recall that the Gold Miner Bullish Percent Index (BPGDM) is in a bull trend, which is another factor that mitigates an outright crash scenario. In other words, if it bottoms at a low extreme that is a higher low than previous post-2015 extremes it could act as a shock absorber.


This Post Has 6 Comments

  1. adrian noordam

    What does that mean for gold?

    1. Gary

      It means it should hold the 1830 area or it’s back to the drawing board for gold too. But I see gold differently, as a long-term value. As for speculations like PHYS/GLD, the SMA 200 area (1830 +/-) needs to hold.

    2. Gary

      Making clear that by 1830 ‘area’ I mean with +/- to a higher low that can extend down to 1790. But that makes it less comfortable for price players. Value ‘physical’ players should rest easy.

  2. Bart

    One of your best posts, Gary. There is an order even in chaos.

    Some perspective…. In March 2020, pm stocks fell 41% within a month or so; they have now fallen 27% thus far. In March 2020, the SPX fell 36% from its ATH back then, while we have lost currently almost 20% from the January 2022 ATH. Obviously, in March 2020 we entered an easing cycle, while now we’ve started the tightening cycle.

  3. Apple

    Silver miners have gotten crushed. Ag is down close 50% in a few months. When do they become a screaming buy?

    1. Gary

      I am not interested in silver or silver miners because I am not a true believer in silver. So the question probably needs to be answered by a silver bull of some kind. But if I were to pretend to be a silver bull I’d be looking for a washed out CoT and deeply oversold technicals.

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