It is just one way of viewing the bull market, but the relationship between T-bill yields (Fed Funds proxy) and the HUI Gold Bugs index is an important one.
We have already noted, through other market indications and internals, that the current phase is much like the righteous gold miner bull phase that played out from 2000 to 2003. Let’s let this chart tell its story with a focus on the T-bill and the index.
In 2000 the stock market finally gave up the bull after a rate hike campaign that had seen the miners under pressure and driven to an important low. On the current phase, we see HUI ending a 4 year long corrective consolidation of the second leg up of its bull market that began in 2016, while at the same time, the T-bill (and thus the Fed) has turned down.
I have marked the chart up with several other phases, which held varying macro backdrops. Check it out, consider it. Let it marinate. But for our purposes today, let’s simply focus on 2000-2003, as we have been by several other macro views this year. If we make the assumption that the Fed is now on a firm rate cutting campaign [1], we would also assume that HUI’s breakout is only just getting going.
As it stands, our next target is 375+ and the ultimate target is 500 (+/-) [2]. If the disinflation and economic contraction that the Fed is reacting to continues and intensifies, we will have a fine backdrop for a continued gold stock bull. Remember, NFTRH is the source that has been talking about disinflation/deflation and economic contraction as the primary beneficial macro for the gold mining industry, while a vast majority blathered on about inflation (because, I assume, that was the backdrop we had and so the promoters attempted to make chicken salad out of chicken shit).
So IF this cycle is like previous cycles that featured deflationary pressure, a real gold stock bull phase is unfolding. For a caveat to this, please see below.
[1] One caveat to that is the big picture message of the 30yr yield Continuum’s trend break. In other words, if our downside target of 3.3% is accurate, the Fed Funds will not be going near zero as in previous cases. Remember, however, that the Fed Funds rate is far from the only macro-fundamental consideration for gold stocks.
[2] This is not to say that HUI needs to stop at 500. It is just the primary operating target at this time.
