Gold stocks have routinely been impaired during the long inflation cycle. The Continuum is nothing if not a picture of a long disinflationary trend in bond market signaling that, especially since the 2001-2003 time frame,
While the likes of Ben Bernanke really put the process on steroids, Alan Greenspan was regarded as a trailblazer in inflationary policy-making. He birthed the age of Inflation onDemand, with little regard for sound practices and much regard for the asset owner classes. Bernanke simply took the playbook and ran with it (to hero status). Together they launched and tended the 20 year phase of inflationary policy-making masked as heroism. Bernanke may have been “the hero”, but Greenspan was the “Maestro”, was he not?
As to ‘why’ the chart’s trend relationship between the HUI/Gold ratio and the yield may prove bullish for gold miners, since gold is proven to out-perform the miners during inflationary phases, what might happen when the macro flips the other way? If our view (that the current disinflationary Goldilocks trade will morph into a liquidity-constrained deflation scare before the next inflation phase) is correct, gold stocks should out-perform when the yield normalizes (pulls back)? Probably not the minute that yields obviously top and drop (inflationist bugs will be unloading, after all), but eventually the miners will grind out a bull market (or more accurately, continue the highly volatile one in place since 2016) that few will expect.
I don’t expect the old downtrend in the yield to reemerge, but a hard drop amid deflationary pressure would benefit the miners in relation to gold. It’s not just a chart telling us that. It’s the fact that gold has under-performed inflated commodities and markets since 2020 and often over the last 20 (inflationary) years, as the miners leveraged its under-performance (as pictured in the HUI/Gold ratio).
Leverage works both ways. But most will not expect it to work in a positive way because herds were well tended by previous macro trends. Think of the big spike in the yield as a handle. The end.
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