We have been noting how the Gold/SPX ratio is still a downward drag for the gold miners as the HUI index is still well above that guiding ratio, which is in the dumps during the risk ‘on’ party (mini mania?) in stocks. From a US perspective, until gold starts to rise vs. the US headline index (it bottomed long ago vs. small caps and the median of 1700 stocks, XVG, and other broader measures of the stock market) a drag will be in place by this indicator.
Weekly HUI shows the sector in an unbroken correction from mid-2020, slithering down the lower rail of the channel with ugly RSI and MACD. Certainly nothing technically actionable by this chart.
However, the Gold Miners Bullish Percent is declining back to a contrary positive oversold condition, highlighting that the 180 to 200 area support could and probably should hold.
Referring back to the first paragraph, the miners are under the pressure of the Gold/SPX ratio and indicators similar to it. However, check out this positive divergence by the Gold/RINF ratio to HUI. Gold/RINF and HUI had been a reliable correlation since mid/late 2022. In essence, it’s a view of gold vs. a gauge of inflation expectations.
Far be it from me to cherry pick and cheer lead positive indicators. But also it be me to look for positive indications amid utter ignominious and bearish market activity (i.e. contrarian opportunity).
I have beat the subject of gold and inflation to death, but to this day (yesterday, actually) I still read analysis out there touting how gold is going to morph into a great inflation protector any day now. But our view is and has been that while gold can be an inflation hedge under certain (stag/counter-cyclical) circumstances, it is a relatively poor one when the inflation has worked to the apparent benefit of the economy as it has in the post-2020 phase.
The Gold/RINF ratio remains aloft while HUI has tanked amid increasingly bearish sentiment. There have obviously been other times when these two do not match up. Notably, when gold bugs are pumping ‘buy gold stocks because… INFLATION!’ I think the current view is one of inflationists giving up the ship even as a counter-cyclical and/or disinflationary indicator (Gold/RINF) holds its ground. In other words, even as a would-be positive macro fundamental indicator* holds its ground.
Proof that the ‘buy gold because INFLATION!’ hysterics were wrong comes in the form of gold’s flat out bad performance during the most intense phase of inflationary effects of the inflation operations employed by the Fed and government in 2020.
Bottom Line
- Gold stocks are getting oversold.
- Gold stocks are hated.
- Some macro indicators continue to imply pressure against the miners.
- But one important indicator implies the opposite, even as contrary positive (over-bearish) sentiment and oversold conditions are the current status.
* “Would-be” positive when Goldilocks disinflation transitions to something more negative to the economy.
