The miners leverage gold’s standing within in the macro. So if gold is weak vs. cyclical markets/assets then the miners tend to be much weaker. If gold is strong relative to these assets then the miners can leverage that to the upside as well and eventually outperform.
Here is a snapshot of the current macro setup, which does not take into account the recently oversold technical situation or the contrary positive sentiment situation…
Gold is improving in its recent out-performance to oil. A very important gold mining sector fundamental input.
Gold is also doing well vs. commodities. This is an important consideration in order to separate our bullish view from the perma-bullish inflationist views.
Gold is consolidating vs. industrial metals, but remains in a firm uptrend. The base metals needed to catch a break at some point. But this remains positive for the gold mining macro view.
Gold vs. stocks declined hard with the stock rally and this is an area that should hold to keep the indicator intact.
Treasury bonds continue to be on the bounce theme, which is a near-term tailwind for gold.
The ‘real’ 10yr yield bounced a bit but is still in relief mode compared to a few weeks ago. A drop back to negative would improve the situation further.
The fallen souffle’ known as the yield curve is still not constructive theoretically (when it begins to steepen it will be). But on a risk vs. reward basis it is very positive because how much lower can the inversion go? The inverted yield curve is consistent with the temporary ‘Goldilocks’ twilight we are working to, but a steepener – at whatever point it arrives, as it’s under no direct time imperative – would change that.
To put it another way, the risk to the ‘flattener’ play is very high and the risk to the ‘steepener’ play is very low, by definition of the current structure. Timing is the variable.
Bottom Line
The macro funda continue to pivot toward a positive orientation, especially with the moves in Gold/Oil and Gold/Commodities.
