Fundamentally, the gold stock rally was labeled a “bounce only” because it was just another item rising anti-USD in an ‘inflation trade’ revival. Right along with Oil, Copper and the outliers like REE, Lithium, Uranium, etc.
If we are disinterested in commodities (I am and have been), then we were cautious on the precious metals for this reason.
Like it or not, we are in a process of eliminating the inflationist gold bugs, and a lot of ‘inflation trade’ promoters while we’re at it. I guess that is me being “sanctimonious” as one blog described me recently. I prefer ‘overly judgmental’, but whatever.
Moving on, one indicator of the coming problem in the gold sector was the tried and true HUI-Gold ratio (HUI-GLD used here, while NFTRH used a very similar HUI-Gold chart to note the early caution signal on May 17).
By Michael Ashton
I am not one of those people who believe that if the Fed is dramatically easing, you simply must own equities. I must admit, charts like the one below (source: Bloomberg), showing the S&P versus the monetary base, seem awfully persuasive.
Continue reading If Liquidity is Your Sword, Keep Swinging
“If the second largest economy in the world, right, says ‘we’re going to inject as much liquidity as we have since the financial crisis’, that is a big deal. So I think that is a message that PBOC’s sending that says like risk assets; grow your appetite for risk assets.”
This reminds me of last October when super Fed Hawk James Bullard puked out talk of QE 4 the minute US markets showed something impulsive to the downside. Turned out (as we noted at the time) that the Semiconductor element of that mini panic was entirely hype and the Dove in drag went away to gather himself, most recently coming back to the mic with his sharp beak and talons and that glaring look in his eyes.
Ha ha ha… now China panics in an effort to soft peddle the rational policy it enacted of allowing shorting of its ‘free’ markets. We called the ‘China allows shorting’ news non-fundamental hype on Friday and we call the ‘China eases’ news today hype as well. Though its implications could be felt well beyond a hype burst, if players are indeed compelled to “like risk assets” and to grow their “appetite for risk assets.”
The bottom line is that we are on a long journey toward losing confidence in these policy moles. Here in the US a cranky and sometimes malcontented website has dubbed the phase Peak Fed ©.
Bulls and bears are getting ground up during the process, which will either resolve up (manic acceleration) or down (cyclical trend change). But it is a process and by definition a process is “a natural or involuntary series of changes”. Believe it or not, the process is natural. In this case it is addressing unnatural things.