NFTRH+; the way it’s shaping up in the precious metals [w/ edit]

[edit] a family emergency (hopefully manageable) has happened. Makes stuff like the below seem unimportant. Please don’t interpret any lack of activity in the trade log as anything other than that.

I’ll try to be clear. The best buying opportunities often shape up in the PM sector when the bugs are selling for the wrong reasons after having bought for the wrong reasons. It’s just the way it is. If a critical mass of them bought for inflationary reasons (they did) and have not yet disgorged their positions (unclear, but the market will advise) then there is moral hazard involved.

The favored plan, which was for HUI and the HUI/Gold ratio to pull back to extreme lows, but within ‘intact’ status (i.e. HUI 230 +/-, allowing to 220 or so) now sees HUI at 216, poking a lower low to the December low and also the HUI/Gold ratio doing the same thing. Not good. Sure, this could be a whipsaw. That sometimes happens. A breakdown to fool players into puking before a low and reversal. Look no further than what gold did when it broke down in September. But even then, it took well over a month for it to reverse and undo that technical damage.

I am a man with charts. And a brain. That is all I am. I cannot tell you if this is a whipsaw or not. I can tell you that as of 10:18 US Eastern time on Wednesday the sector is indicating breakdown.

Back to our little story begun in the first paragraph, the most glorious buys in gold stocks are when the bugs are projectile vomiting their positions because inflation is failing badly (i.e. deflation fears). That is obviously not happening yet, but if the sector breaks here it could well be a sign that the rest of the macro will follow suit into a deflationary mindset (I know, that sounds like crazy talk right now).

But if history (of this sector) is a guide, gold miners are puked hard and often first into deflation scares and rally hard and often first coming out of deflation scares, preceding new inflation phases (before under-performing in those inflation phases as the promoters continue to tout). It’s perverse, sad, funny and tawdry all at once.

Bottom Line

If the sector fails here, hold cash and be ready. But it would not be logical and comfortable as would be buying at HUI 230 (+/-) as I for one originally envisioned. If it’s a whipsaw, as you were. Move along, nothing to see here (but the next leg of a bull market). I am not trying to change peoples’ trading or investment horizons. For all I know you can take a big down leg and simply add more when appropriate. But I am not that guy.

The most bottom line from my perspective is that I always want to feel strong and never weak. That means I do not want to be an inflationist gold bug, which most of them are and which is weakness hardwired into their mindset due to incorrect assumptions. All in my not overly humble opinion of course.

As a final note, HUI has clear support in the 200 to 206 range. That is where I’d look to consider buying if this week’s breakdown is real. But that is under a relatively stable macro backdrop. If it gets off the hook recall the crashes of 2008 and 2020 for guidance. In ’08 I clearly remember support levels snapping like twigs.