An abbreviated edition of NFTRH this week

Economy

If this is indicative of the near future, which it logically is, then the “Government Hiring” leg should be kicked out from under the Economy’s table soon enough. Recall that we have consistently, with only the exception of April, 2024, seen unprecedented government hiring for at least a year now. Our plan last year included an allowance that this was part of the process of a government in power doing all it could to stay in power. It didn’t, and now comes the fallout.

So now, with respect to the Good Ship Lollipop’s economic sailing, it would appear to be up to the vast Education and Health [and other] services segments to get the job done, so to speak. Reference the most recent economic industry employment report:

With Retail Sales getting hammered in January, the picture worsens. Facts. Could all turn around next week, but as of today the economy continues to ease, a major contributor to headline employment is getting sacked and our plan, a plan for disinflation and economic easing to eventually progress to a liquidity or deflation scare and outright economic deceleration, is well on track.

Precious Metals

Hence, the hit to the precious metals on Friday – whether it is a prelude to a correction or not – had a comical element to it. “OMG!! The consumer is weakening and that will drive down prices (what the public thinks of as inflation), and my precious metals inflation trades are in trouble!” think gold bugs who have been herded by inflationist dogma or worse, war/terror/pestilence, or worse still, a mix of both… into the sector.

Ironic, since it is the opposite condition to inflationary economic growth that will drive counter-cyclical gold mining fundamentals. So when I open the prospect of a “healthy” correction, if it comes about “healthy” would mean another periodic and necessary cleansing of the sector of wrong-headed players. Again, the guy who taught me a lot last week, even though I did not act on his teachings immediately.

Pardon my repeated showing of this little interaction, but it is a teaching moment perhaps for those not long experienced in the precious metals and a “duh, remember how it usually goes, Gary??” moment for your letter writer.

Reluctant PM bull, my ass. I am just someone trying to advise what I see and interpret, not hold some kind of party line. Sometimes I actually hope for punishment for gold bulls because they are some of the greediest people on the planet, in my opinion. How dare you say gold or silver are overbought?

Moving on, for me hedging is often an unsatisfying endeavor. I took some profits on some non-core items and the current plan is – as in the past – to hold core items like AEM, OGN.V, RGLD, SKE and also I’d like to hang on to KGC, NEM, AGI, RIO.V and a few others, rather than go on a wholesale profit-take to cash because if I am wrong about the potential for a deeper pullback, then there goes the sector. So that is an advantage of hedging. It can promote patience while continuing to hold core items.

Along with hedging, remaining long positions are shown in the portfolios at the end of the report [edit: my apology, due to time constraint portfolios were not included]. It is Q reporting season and that in itself may be triggering selling if expectations got ahead of sector internals. Again, I am impaired a bit by travel, but on Friday I did see that silver miner HL, for example, reported and then got lit up… big time. My KGC position took a lesser hit on earnings, and could be on its way to a test of the support noted in last week’s video. Sometimes, it’s just time.

You can also refer to NFTRH 848’s video for some potential sector correction parameters, but for simplicity let’s note:

• Gold: Upside target is 3000+. Corrective targets for gold (current price: 2882) would be the daily EMA 20 at 2825 (modest pullback), the previous high at 2790 (normal pullback) or the uptrending SMA 50 at 2717 (healthy pullback that could clear the excesses).
• Silver: I was of course whipsawed to regret for selling SLV and not buying PSLV to no regret whatsoever. Did Friday’s pop and reversal mean something? Again to me, if feels like it does. Regardless, if silver (current price: 32.11) does pull back look for the daily EMA 20 at 31.50 (modest pullback) or support and the SMA 50 & 200 in the 30.30 to 31 range (moderate pullback). Neither of these options are extreme, obviously. Silver could break below there to shake people out and that more extreme (but still not overly extreme) pullback area would be a lateral support area at 29.50.
• GDX: In last week’s video we noted a couple gaps on GDX (current: 41.08) that could fill at 40.18 and 38.25. The lower corresponds with support in the 38 to 38.70 range. The SMA 50 is bull (“golden”) crossing over the SMA 200, which is longer-term positive but shorter-term all too often a pullback signal. That moving average junction, also implied support, is in the 37 to 37.25 area. That is also right smack at the 62% Fib retrace area. That would represent a harsh but healthy correction. We do NOT want to see that level taken out because the word “healthy” would be replaced by a suspect technical condition. Bottom Gold Stock Line: If a correction has kicked off (still an “if”), there is a lot of scope for downside cleaning within a healthy and ongoing bull phase. If a correction has not kicked off I will have made too much of the pop and reversal in silver and the big, heavy bear candle on GDX (and HUI).
• Meanwhile, it was interesting that the situation reversed from up to down after US open and the goons settled in. So maybe gold and silver will get a lift on Monday as the goons celebrate a holiday before returning on Tuesday.

Gold/Silver Ratio & USD

USD got hammered while the precious metals got reversed and also got hammered on Thursday and Friday. It is losing initial support, but does not break down unless it drops below the December 6th low of 105.42, which would increase the odds of a more severe correction.

The next support is the 106 area. The pullback is normal above that.

USD’s weakness along with the precious metals may seem a little strange to many, but it’s not really so strange because “anti-USD” is not a primary reason to be long gold stocks or more to the point, to favor gold stock fundamentals.

Pro-USD, pro-liquidity destruction and hence, pro Gold/Silver ratio (GSR), is a reason to be constructive on gold stock fundamentals, because under those conditions gold should far out-perform (even if by dropping less) risk assets like stocks and commodities. In other words, a rising GSR often implies a rising “real” price of gold.

It is that “REAL” price of gold that gold miners leverage, either negatively (as per the majority of the last 20 years) or positively (as per 2001-2004 and potentially the decelerating macro out ahead).

Below are some updated measures of gold’s “real” price, starting with the still constructive Gold/Silver ratio, the Gold/Copper ratio in pullback but still trending up, the Gold/Oil ratio trending up, Gold/SPX still constructive to bottom and turn up, and Gold/Global robotically trending up.

The “real” price of gold by several measures, including gold vs. US and global currencies, is trending up and that is a clock ticking on a coming economic contraction. At least that is how it worked in previous economic contractions over the last quarter century. The gold miners leverage the “real” price of gold. The “real” price of gold is key to the “real” fundamentals (not the phony, pro-inflation rationale most often promoted).

Wrapping Up

The “abbreviated” report is not so abbreviated so far, it is nearly time to catch another train and so, let’s wrap ‘er up, quick time.

• Treasury bonds popped (yields dropped) on the sour economic news. Why again am I looking at any gold stock sector pullback as healthy and a buying opportunity? Because economic contraction.
• That could give the stock market a Goldilocks lift in the short-term. Tech was relatively firm on Friday and that could be a hint that the market wants to pump Goldilocks again, choosing to see the happy side of economic deceleration. For now.
• Global (ACWX) furthered its recent bullishness on USD weakness, which is logical to our ongoing analysis. Within that China large caps (FXI) continued the new uptrend vs. US large caps (SPX), Asia (AAXJ) continues to look prospective (I hold it), as does EEM.
• America may be great again, but Europe (STOXX 600) is launching into blue sky. Aussie and Canada are up there, bullish, but relatively less spectacular due their commodity/resources base. Japan is on a long sideways trend.
• Put it all in a blender and you see that global (ACWX) has been rising vs. US (SPY) for all of 2025 so far. Hardly a ringing endorsement for America’s “great again” prospects in the short to mid-term, at least. ACWX/SPY is in an intermediate rally but still in a major downtrend. Perhaps it is going to test that downtrend marker (SMA 200). Here’s the visual:

• Commodities are as they have been, not yet good, other than the Whack-a-Mole game where one pops and another drops. However, the drop in USD would help here if it goes beyond routine and if silver really does get a move on vs. gold (and if I’m making too big a deal about precious metals correction potential).

Let’s gear the report down with the daily chart of the Good Ship Lollipop’s signature index, the S&P 500.

Bullish, baby.

Final Thoughts

• Goldilocks is in play, along with an over-valued, over-played, technically extended situation riding on hope, as a large population of Americans and global citizens view Trump and his executive VP Musk as doing positive things. And amid the angst of it all, they are doing some good things. Cutting government waste is a good thing.
• Why do I say “government waste?” Glad you asked. In my formative years and former life I won a bid to a government contractor. Won it by $40k, which for a small business was a sizable margin. I was told by the buyer “Sorry Gary, I gotta give it to a minority”. I “GOTTA” pay $40k more (at taxpayers’ expense) to a minority than a competitive bidder. If it was all on the up and up, I could chalk it up to getting caught up in something that means well. But back then, at least in my sphere of business, “minority” most often meant a company employing lots of white men, including management and upper management with a figurehead “minority” installed at the top. In other words, “minorities” were companies that knew how to game the system.
• So amid the uproar I assume there is some component of good being done by Musk. Will any of that be worth the fallout, the damage and the widening social divisions? Will they actually cut something out of the body politic that was a vital organ? Do they even actually know what they are doing or is Doge a bunch of kids running amok? All above my pay grade. I follow markets. I manage markets.
• Right now markets are evaluating, or quite possibly getting distracted or parallelized by side show in Washington. But the indications don’t care about noise. They are degenerating. The latest in that regard was the consumer per Friday’s report. Anecdotal evidence tells us that government hiring, the second most aggressive employer over the last year is done for.
• We remain on track to economic deceleration in 2025, per the macro indications.
• Though I don’t like the man personally, I am going to be open to the idea that his economic team (as opposed to his crazy health, justice and social teams) can actually swing this. Make America more competitive and provide a more equitable economy for its citizens. I like that he is willing to take pain first in service to improvement later.
• The negatives on that are the above-noted “pain first” (recession, disinflation/deflation) and his planned use of the same parlor trick employed by the Fed all these decades… bond market manipulation. So we may also be in a great post-bubble environment as indicated by the Continuum’s yield breakout and trend change. I don’t think rearranging the deck chairs on the Good Ship Lollipop will stop a major macro change like this any time soon.

Cash & income-paying Equivalents are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.

Refer to the Trade Log under the NFTRH Premium menu at nftrh.com for trade info, if interested (not that you necessarily should be). Also, you can follow on X @NFTRHgt for notice of updates.

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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets.  We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind.  See full terms & conditions of service under the ‘About’ heading in the main menu.