Folks, I want to get this down on paper BEFORE the shit hits the fan. Not during or after. Basically, I already have written it all, but in various reports/updates. I want to put a general outline here in this one particular spot at this particular (profitable) time. It is the game plan, as I see it. I could be wrong, but my job is to do analysis and tell you what that analysis means to me.
Current Phase – Happy Days, But Gold/Gold Stocks Leading
The macro has changed and gold has become preeminent in the asset world. Being simply a “value” and “insurance” asset, this means that the asset world is in a world of hurt. The gold mining sector has been leveraging gold’s status in this new macro. All according to once desired and then actualized plans.
The Biden admin did a lot of damage to the macro, by implementing policies designed (IMO) to delay the economic/market fallout because, well, a fairly important election was upcoming. They failed, but their inputs remained into Trump 2.0. Our plan was for a bag of crap to land in Trump’s lap (nice rhyme).
Ah, but who could foresee the levels to which this guy was going to get under the hood and literally start tearing out hoses, installing new wiring and generally try to remake the engine in 6 months? The mayhem caused a big, over-bearish reaction in the spring and that is being corrected today. “Happy days are here again!” is the implication by the stock market’s price.
No, they are not. Yet.
Internal market indicators like the chart below and straight up economic indicators like commercial and now residential real estate, employment and others show a needle pointing down. The bear market signaling of this chart is and has been taking its time to actually register with the stock market (unless it truly is “different this time”, which I doubt).
Timing? For months now, and in concert with what Homebuilder/subscriber DT told me about the Homies upcoming Q3 earnings, I’ve been looking at late Q3, and more likely Q4 for a top in the broad markets as “discovery” of just how tattered the economy is starts to show up in officially released corporate earnings. This, regardless of what the Fed does with the Funds Rate.
So with the HUI/Gold ratio still rising (a positive sector internal) amid gathering momentum, the situation in the precious metals is bullish. Technically, internal leadership-wise and fundamentally. All systems go, baby.
Except that… the broad market and its perceived (remember, I am logically speculating) expiration date are upcoming. This, just as HUI is approaching its long-held target of 500 (+/-). With this momentum and the broads still intact, that target could get taken out like butter. Especially since the TSX-V is still bullish nominally and in ratio to the TSX, with silver is still trending up (but not definitively taking leadership over gold).
I see the end of the current phase upcoming. Stocks to take a hard correction or cyclical bear market before potentially finding footing some many months/year+ down the road (Trump’s policies are, after all, net positive for corporate earnings… if he doesn’t actually break the country in the meantime). This could be a prelude to anything from a 1970s style “go nowhere” market to a perhaps final policy-infused bubble blowoff to the upside in stocks later this decade.
In a nearer-term correction, I would see gold holding up better than anything in such a situation. I’d see silver lose its short-term leadership over gold and I would anticipate gold stocks getting whacked hard, despite the fundamentals that are good and would get even better in such a market/economic downturn.
The difference between this phase and the terrible (and glorious) crash of 2008 is that the miners today are righteously seeking proper valuation compared to 2008 when, after years of inflationary excess, they were valuation-bloated pigs heading into the crash of ’08. Hence, I would not see a crash for gold stocks. But I would see a correction hard enough that many of us would not want to ride it down while heavily committed.
More broadly, traders can short (various sectors) at will. Have some fun, I guess. Personally, I believe during this phase Treasury yields will decline and short-term T bonds would continue to be my default.
Phase 2
The miners would be a buy, first and foremost in the stock market world. But the global environment is such that strategic commodities will still be getting “grabbed”. It is not a friendly world out there. It’s now apparently every man [country] for himself, led by America for itself.
I am not going to put it past Trump to engineer a rapidly recovering economy by late 2026 or early 2027. At that point (into the end of the decade) it could be time to favor many stock market areas, obviously those that are policy-favored. It would also be a time to consider the end of the gold stock bull market (IMO from much higher levels than HUI 500).
Bottom Line
I wanted to get this in writing in one place as a blueprint for what I think is ahead. Gold bugs are increasingly confident and anecdotally, some unsophisticated players are dismissive of any doubt that the sector will not just keep going up up UP.
I think we have years ahead of relative bullish precious metals vs. broad stocks. You have seen my big picture chart of the SPX/Gold ratio…
The stock market has been bouncing in relation to gold to cure casino patrons’ over-bearishness from the spring. However, gold is just about reset to re-take leadership per the daily chart of the Gold/SPX ratio.
That could do two things:
- Instigate a final upside move (potentially materially beyond the operating target of HUI 500) in the gold miners, and…
- Start the clock ticking on a coming broad bear phase that could include the miners to some degree.
As noted earlier, I just want to get this in writing now. Not after the feces hit the spinning blades.
Forewarned = forearmed and all.
Now back to our regularly scheduled bullish programming.
