NFTRH Interim Update 1.31.13, More Perspective

Because folks, we can never get enough perspective to offset the dogged viewpoints out there doing battle with each other.

hui monthly

I distinctly remember expecting the HUI to break down from the green H&S in 2006.  I was even more cautious on the red one that I used to call “the gold bugs’ crown of thorns”.  I was not so much cautious because it was an H&S, but because the gold mining sector’s fundamental backdrop (AKA the real price of gold as compared to many positively correlated commodities) had spent another couple of years degrading after the first H&S failed to break down.

You, I and scores of other players see the massive H&S that has formed on HUI today.  If this were to break down it would not bother me as a gold stock player because I would be long gone by such time.  The measured target would after all, end the bull market with a lower low to 2008 (although the counter trend snap back could be a doozy from 110).  Point is however, HUI would then be viewed as an indicator more than anything else.

Game Plan #1

The current game plan holds for a broad market correction to fix this dumb money over bullish sentiment.  We would look for the gold stock sector to bottom first as the ‘inflation hounds’ pick up new inflation manifestations first and turn up from deplorably bearish sentiment.  This would lead a new broad market leg higher.

Game Plan #2

As mentioned previously, the alternative is that the precious metals are telling us something right now and that something is that the global inflationary operation is going to fail right here and now.  I continue not to favor this plan, but it must be respected.

Conclusion

The Fed should be releasing BASE money data today.  Let’s see how it looks.  Commodities have started rising, Treasury yields are rising and the stage looks set for a market correction leading to a new and perhaps final up phase to or through SPX 1550.  I want to see markets drop hard and fill the big gaps left on the end of December euphoria surge.

But I continue to view deflation as the biggest threat, not inflation.  Deflation, or the need to unwind monetary excess is the backbone against which policy makers continue to inflate.  One day they are going to fail.  Gold will still be there, but the world of paper – including gold stocks – may not.

So please realize that the above chart tells a horrible ‘potential’ story.  It is however, as yet not the preferred story.  If money supply fails to rise ‘this’ time, we would need to realize that something may indeed be different ‘this’ time.

The intensive focus on gold stocks will now back off once again because I feel there are already too many people too intimately tied to them.  They will go up (expected) or they will go down (very possible) and unbiased market players should have patience in the meanwhile. Remember that if a real rally is to start, an initial thrust can be missed and yet would seem like small lost opportunity a couple months down the road.

Aside from that, more and more it is the macro message that is becoming important for everyone, not just gold stock players.

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