[edit] I corrected some wording in the update, so it may be worth another read if you’ve already gone through it. Also, I have not done anything today (like hedging or profit-taking) in conjunction with the update’s theme. Just FYI.
Our game plan is going along nicely. That game plan is bullish precious metals and more recently a shift in leadership to silver over gold, which would fan the play out to “inflation trades” like commodities.
As part of that, we noted in NFTRH 865 that HUI in relation to the Gold/RINF ratio was getting frothy but that it is not necessarily anything to worry about, since an inflation trade would logically drop the ratio while inflation bugs buy gold stocks because… “INFLATION!”
Ah, wrong guys, fundamentally. But price-wise, maybe right as per much of the 2005-2008 period.
But HUI is frothy again relative to the ratio and that is a fact. Will it have an effect before the end of this bull phase? I don’t know. But if the chart does hold to its 2024 history, HUI would pull back from this condition to some degree.
Another measure is the BPGDM, which is also springing back toward frothy. In a bull market frothy can become more FROTHY, as we know. Indeed, one of our themes for a terminal move is a hyper intense market that just will not let the FOMOs aboard. Like, think about the FOMOs’ mindset right now. Their eyes are bleeding every time they look at gold stocks going up.
Bottom Line
If there is going to be at least one more pullback before this rally ends (target is HUI 500, current level is 427) some ingredients for it are gathering, as shown above.
I just want to provide a reminder that my plan is for a rally to whatever high is ahead and then a solid (major) correction along with a potentially big bear move in broader markets. A profit-taking opportunity and cash raising opportunity.
HUI and GDX are not extremely overbought on daily charts, so if a correction were to start now or shortly, I’d expect it to be maybe the last routine pullback before a drive to target. The alternative is for things to just keep driving higher, to/toward target and into eventual termination (and profit-taking by your letter writer).
That’s how I see things right now. I am evaluating whether or not to hedge, and given my recent history with that, I’ll think long and hard because I do have a decent level of confidence in HUI 500 upcoming. It feels like a magnet, either directly or after an interim pullback reaction.
More to come as events unfold.
I find hedging incredibly difficult on the miners. I’m either in the pool or out on a trading basis. I do, however, at select moments, buy GLD puts 1-2 months out against fizz holdings. It makes me feel good for some reason.