As you know, the recent quarterly reports for the gold mining industry were expected to be quite positive, and they were. We viewed that as a “sell the news” possibility as well as an “as good as it gets” possibility, fundamentally. Now throw in the old PDAC time target (that trade show often seems to arrive along with volatility in the mining sectors) and you’ve got, well, this. A hard pullback.
But I want to take it a step further. We used the strongly rising Gold/Oil ratio as a positive fundamental underpinning over the last year. Put another way, the downtrending Oil/Gold ratio. With the US dropping bombs in a far away place that is a nerve center of the oil markets, well, this >>>
The Oil/Gold ratio is spiking.
Much like the USD and Gold/Silver ratios shown in the previous update, if this continues upward it will not be a good sign for the gold mining industry. In this case, fundamentally.
That is not to say that the trend will change. The orange 200 day average above is the major daily chart trend and it is down. However, when the precious metals originally got hit back in late January, we anticipated a deeper, more extended correction. Think of the USD and GSR as triggers and the chart above, if it persists upward, as a fundamental drag that could extend the correction.
Underneath all of this, and making the analysis more difficult, is that flashpoints like war, terror and the like are usually not long-term affairs. But we can say this, folks. The gold stock sector was at least due for a clock cleaning. What is happening now could be the next shoe to drop of a more extended correction originally anticipated.
I am keeping it all on the table. I have raised cash and increased shorting. And not just in the precious metals. I don’t like reacting to something like war, but I do have that VIX divergence in mind and the bad looks of the SPX and NDX charts in mind as well. War aside, it may well have been time for a broad correction (ref. also the February seasonal, as the broad highs were end of January (with a secondary high in gold stocks just yesterday).
I don’t want to get your head spinning with too many more thought exercises. I am managing risk and buttoning things down until the dust settles. I want to be in position to see this as opportunity: protection and even maybe some speculation on the way down. But prepared to patiently position for what’s ahead, which I continue to think may be a liquidity-driven bull phase into the mid-terms. That’s the still favored plan, at least.
