NFTRH; Talkin’ gold (and copper) miners

Gold stocks have been getting sold along with the segment that they should not be overly associated with but unfortunately, are. That is the cyclical inflation markets like commodities, resources and other areas that benefit from an economy (temporarily) strengthening due to inflation.

CPI is tomorrow and sure, there could easily be a downside surprise in inflation (it’s going to come sooner or later). In fact, I almost added back some commodity and precious metals stuff today but instead sat on my hands. Being conservative has worked for me in 2022 if you can say that -4% is something that ‘worked’. Well, it works better than the -21% for SPX and worse for other indexes/sectors/global markets. The HUI Gold Bugs index is down 20% as well, and this after having been in a major correction since mid-2020.

My point is that NFTRH is not going to play contrarian hero here even though I think that could be in the cards. I am going to simply do what has worked, which is to not take chances. Not yet, and not with the Fed coming up near month’s end. While CPI could be a handy contrarian rally point it could also fail to be that with the possibility – and in my opinion likelihood – that the FOMC event, a dynamic rate hike in the offing, could be that event. It could have a lot of ducks lined up right, including seasonals for the precious metals, not to mention the CoT alignments for precious and commodity metals alike.

So please understand that if the contrary play manifests before FOMC on July 27, then my caution is leading would-be players astray. I ask you to consider your own and other valid information sources. But when I created this chart and considered it my resolve to have patience with the inflation stuff was only increased.

What thing looks like the other thing? What thing that benefits from disinflation and counter-cyclical economic backdrop looks like the thing that benefits from the opposite?

FCX is selected as a representative for copper stocks because its Head & Shoulders pattern is not as messy as the one on COPX (Copper Miners ETF). GDX has an advantage in that its neckline slopes up while FCX (and the one on COPX, BTW) slopes down. The result is that while FCX and GDX just happen to be at the same price (26+), FCX’s target is a bit lower.

Important notes

  • As we’ve discussed previously, a similar pattern on HUI measures to around 135.
  • Gold stocks are at a thick long-term support area (not shown above). So it’s pattern vs. support.
  • The two charts above show perfectly the unison with which inflationists on the run are selling cyclical commodity related holdings and counter-cyclical gold mining holdings. I do not want to have my fate in the hands of such herds.
  • A contrarian opportunity is setting up but in my opinion it would be much grander if it came directly on the heels of a blow-off in Fed Fear/Angst during a typical seasonal turn period. Such an exclamation point could easily tank gold miners into a climactic event if they continue to be tethered to the ‘inflation trade’ mindset.

Personally, I choose to miss the initial move if this is THE contrary opportunity shaping up right now. That is because I think there could be a potentially better one in the next couple/few weeks. If I am wrong I am wrong. You must do what you feel is right based on the sum of your research and research sources.

If the turn is missed there will be plenty of time to adjust to a new phase. But if a disaster is avoided and then capitalized on, that would be much better. I admit that I am hoping for an all hell breaks loose moment where only a few capitalize. I love those things and folks, that is my bias. So err, caveat.

To be continued as events unfold.


This Post Has 2 Comments

  1. Randall Martin

    This is the kind of timely clarity for which I cling onto as a tempest tossed seafarer. Zeal Speculator issues redeployment now, after stopping out (25%losses) half his latest June deployments. I look to symmetry between your signals before the move. Please kindly continue to update your thoughts in your timely way. Thank you

    1. Gary

      Will do!

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