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10th May 2022

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The Gold Miner fix was well deserved, but it wasn’t a bubble.

Still today there is a pablum that talks about how if inflation is good for gold, it is especially good for gold miners. I will repeat once again that unless gold does not normally benefit profoundly from cyclical inflation (i.e., inflation is promoting and currently working towards economic goals), the gold miners never do this unless they rise against their preferred fundamentals, like this was the case in two separate phases, the final bull market, which was rightly resolved with crashes.

Here are some graphs that we used NFTRH 648 in a segment that was written to straighten the record. We’ve also used these cards – the first one in particular – since the warning flags went up last summer, visually through the first card and anecdotally through the usual suspects aggressively pumping the ignorant crowds. Buffett is buying a gold standard!… Okay, so much for that. The mood got overly optimistic from the charts and now, as we prepare for the final act of correction, it’s the opposite. That’s perfect.

HUI had far exceeded the Gold / SPX ratio and was therefore very susceptible to a macro basic perspective. Why on earth should players focus on miners digging a rock that was beginning to fail in a price relation to the stock market? They wouldn’t, and not since last summer.

But from a sector Fundamental Perspective The gold / oil ratio (oil / energy is a major driver of mining costs) and HUI show that the 2020 rally had nothing to do with yesterday’s two bubbles when HUI hit more than just danger signals (!) As mentioned by a macro-fundamental indicator above, it has also created two separate bubbles against this fundamental sector. This time? No, no bubble here.

Gold with a gold / oil ratio

From a technical point of view, Huey has only expected what we expected since 2019, namely a bear market correction with a C-leg to 375. Well … check.

All it has done since hitting the target is withdrawing as it should be. The index would never chug through this thick zone of resistance without some reaction.

I originally referred to it as the ABC bear market’s upward revision in 2019 as there was still a long way to go before 375 so you don’t have to worry about definitions with a tradable rally to go either way.

Since then, and until the current correction, we have set Target # 2 around 500 with the prospect that this will be a cyclical bull market. If that is correct, ladies and gentlemen, allow me to introduce you to the first real intestinal check of the bull market.

HUI Gold Bugs Index

Of course it was maybe 375, as good as it gets, as originally expected. Much will depend on the prospect of sustained cyclical inflation versus a fundamentally favored deflationary backdrop for miners. The two bubbles (late 2008 and 2011) were against an inflationary background. When the next rally comes – and it will – you will know that if they go up with inflation, then you have to sell the heck out the miners. You will also know how to turn off the promoters because they will promote you until the next crash (Ref. Q4 2008 and the terrible decline in 2012-2013).

On the other hand, if 77% of the public is wrong about inflation * or if inflation turns into stagflation, if the macro swings disinflationary or deflationary, the fundamentals outlook will improve and be open to new, possibly bullish, analysis if that is everything is the case – too rarely deer comes about and begins to ruin economies.

If we are fortunate enough to have a clear and final surrender, buyers should think about the fundamentals of the next rally and act accordingly.

* Without making a prediction of what will happen, it should be noted that the public is always on one side of the boat when major macro turns occur.

Look back to see my next post!

Best,
Gary Tanashian

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