Speaking of helpful PDF reports, here is one from Behre Dolbear with 2015’s rankings for mining by country. Clicking the graphic yields the full PDF report. This is a must-read for all you mining aficionados and stock pickers out there.
Anyone who has been bearish on gold for the last 4 years has been right. They have been right in Euros and though the trend appears to have been gently changing over the last year or two, they have been right in Canada & Aussie (i.e. commodity currencies) dollars as well. Certainly, they have been right that gold as measured in most global stock markets has been (and remains) bearish.
They have also been right in that gold as a hedge against the kind of inflation that global policy makers have promoted non-stop for years now, has utterly failed. And for gold as an insurance and value asset, a small phase like 4 years is like a blip. Yet still, so many people throw their hats into the ring on gold, constantly micro-managing its every twist and turn.
In 2011 it was what we used to call the “Gold Generals” touting hyper inflation, even as the second to last arrow was about to be inserted on our ‘Continuum’ © chart, indicating that anyone taking an aggressive inflationary stance in their investments was also taking a big chance that it would be different this time and the Continuum would break the limiter AKA the 100 month EMA. It wasn’t and it didn’t.
This brings me to Barry Ritholtz again. His piece at Bloomberg titled Good Luck Bargain Hunting for Gold Miners at Bloomberg is more about the valuations of the miners vs. the metal, but it is some of the wording that I want to address here.
The primary reason is straightforward: Gold is bought and sold based on a narrative that has turned out to be patently untrue. As we move further away from the great credit crisis of 2008-09, the global financial system has stabilized, undercutting the appeal of gold as a hedge against catastrophe. The U.S. economy is improving, as are those of many other countries. The wild inflation and collapse of the U.S. dollar that was going to lead to the demise of civilization and make gold an essential for investors? None of that has happened. Instead the world has low inflation or even deflation and the dollar, the world’s reserve currency, has risen to multiyear highs.
He is right to criticize the hyper inflationist ‘death of the dollar’ contingent of the gold bug “community”, itself a word that belies group-think and susceptibility to bias reinforcement by the group. Did you catch the little ‘Overt Inflationary Effects’ planet in our handy Macrocosm graphic (don’t take its planetary guide literally, it was mostly for fun) from last weekend? There is a reason that I assigned that gold input to the second tiniest planet in the Macrocosm; because it was a wrong headed thesis when Uranium, Crude Oil, Copper and Silver were proven to be bubbles (with relentless inflationist touting of the ‘resources’ and ‘hard assets’ sectors in each case) and it is obviously still wrong now.
This is not to say that inflation cannot be a fundamental input for gold. It has often been a major input. But on this cycle the inflation is not manifesting in rising prices, at least not in relation to the stock market, investment in which can be seen as a ‘hedge’ against price inflation bubbling up in certain services sectors of the economy.
The commodity bubble is all done. The inflation, with the aid of a persistent and powerful global deflationary force, is working in a ‘Goldilocks’ manner and flowing into risk ‘ON’ speculation in paper of all kinds and in some hard assets, just not the kinds that traditional commodity and resources gurus had foreseen. Mainly, the public is doing just fine buying and selling appreciating homes. Who needs several tons of Copper sitting in the garage?
Anyway, back to Barry Ritholtz…
“Gold is bought and sold based on a narrative that has turned out to be patently untrue”
Agreed; the majority of gold bugs have believed the wrong narrative. It was wrong in 2008 and it was wrong again in 2011, and you are using an incorrect narrative as the foundation of your stance in these mainstream media articles that are so cartoonish even the public can understand it.
“the global financial system has stabilized, undercutting the appeal of gold as a hedge against catastrophe”
Again, agreed. The system has stabilized but how many times do we have to review this chart before we can all agree that it has taken extraordinary (and incredibly, ongoing) measures with the implication being that neither you Barry, nor I, know how the fallout is going to go based on embedded distortions that no one can fully understand? You call gold a “hedge against catastrophe”. I have never called it that because I don’t see it that way. I have always called it monetary value (which can fluctuate depending on market sentiment) and insurance. Period.
“The wild inflation and collapse of the U.S. dollar that was going to lead to the demise of civilization and make gold an essential for investors? None of that has happened.”
Barry (not that you read this little out of the mainstream website, but work with me here), do you see the larger planets in the Macrocosm above? They represent the kinds of things that drive people to liquidity and a risk ‘OFF’ stance. What is the ultimate risk ‘OFF’ hard asset in a monetary world that while still working fine, has gone utterly mad in its pushing of traditional policy boundaries? Why, it’s gold. But what is the first and most intense repository of that liquidity? It is none other than dear old Uncle Buck, for US citizens and the way things are currently structured, much of the rest of the world as well.
I have criticized the ‘death of the dollar’ and ‘hard assets/resources’ promotions every which way from Sunday for years now and it is due to a view that before the US dollar falls apart it is likely to totally annihilate hyperinflationists first (per Prechter and Hoye to name two). Hence the big planets above are economic contraction, gold rising vs. stock markets, confidence declining and yield spreads indicating systemic stress (inflationary or deflationary). This is why I have remained completely out of the way of the gold sector destruction for 4 years now, with my market report well in tune with that stance.
So yes Barry, “none of that has happened”; thankfully, or I’d have been wrong in my own thinking (always a possibility). But I have seen nothing to dissuade me yet that I am, as a once and future gold bull (and constant valuer of gold as insurance), on the right course. Several macro fundamental aspects need to come into line and we need to find a bottom technically, sure. But your article adds another input to the bullish camp because you are teaching people who should not be in the gold market (mainstream public) at a real bottom lessons based on the same incorrect assumptions made by the Gold Bug “community” that you seem to provoke.
Maybe you even enjoy stirring the pot and getting the hate mail. I can relate to that. While he did not give me permission to reprint his email, a long-term gold bull emailed me the other day noting my “subjective, gold bashing rhetoric” and my “delusional, fiat money bliss” (ha ha ha). This despite the fact that he and I are of the same long-term orientation. It’s just that our inputs are different and so he sees me as basically one step above Satan (what does that make you Barry? Just kidding, but you get my point).
Misconceptions are everywhere and the stuff you base your articles on do not help that situation. I write that as the other side of the coin that gives much critique to misconceived pro-gold promotions.
The precious metals, which happen to be my anticipated next big macro (long) trade have been bearish since HUI lost 460 for the last time back in oh, what, 2012? And that was being lenient. Not being a cycles guy, I was not able to time the top. I merely observed support parameters and informed NFTRH subscribers of technical violations first, and early eLetter readers subsequently as well (the eLetter was launched after the bear market began).
So now here we are, with the precious metals doing what they usually do when looking to end a bear phase; they are becoming extreme, as in waterfalling…
There is a solid contingent of analysts and writers now bearish on the precious metals. There are also the perma-pom poms and idiotic hallucinations like the “drop dead gorgeous bull wedge” on GDX above (it failed as expected about 15% ago). There have still been too many of these guys out there, obsessing on the precious metals every step of the way calling play-by-play for transfixed gold bugs.
Anyway, what there also is is an HUI target from 2012/2013 of around 100, based on the old monthly H&S top.
This is cross referenced with a gross looking pattern on the weekly chart. Below is the blown up view of a more detailed chart, showing the pattern. Here’s the NFTRH 351 excerpt that went with it…
Below we blow up the above chart (no pun intended) to show the breakdown. The little pattern measures roughly 210-150 = 60; 160 (breakdown point)-60 = 100.
What I find interesting here is that for years now, the big H&S top on the monthly chart has had a target of 100 (+/-). While nothing in TA is set in stone (it’s an art based on probabilities, not a science), confluence adds to the probabilities. The weekly and monthly charts each have independent patterns indicating the same general target.
For years now the sector has been bearish, but at the same time, being a macro trend trader (i.e. my desired mode is not this daily and weekly trading I have had to do in the mature stock market bull, it is to try to anticipate a big new trend or macro theme and be positioned for it) I am thinking like a predator or hunter, as has been advised in NFTRH.
In a situation like this, all you can do is have patience and your best laid targets and plans. I hold exactly 5 junior miners (as of this writing), all of which have charts that are vastly better than HUI and GDX (and GDXJ for that matter) above. I also have been shorting NUGT and holding JDST for full protection against what has been an uninterrupted bearish technical view and an incomplete macro fundamental view.
I know that NFTRH subscribers are prepared and hope that eLetter readers and website readers are prepared as well to the extent they have been able to read gain information and between the lines.
While I have conflicts going on (like the still <barely> intact Semiconductor market leadership vs. the deplorably bearish looking Palladium-Gold ratio) I think we are heading into Extremis, Q4 2008 style. Timing? Not sure. Only regular work will help tell that story. A short-term bottom could come about in the PM complex at any moment, before THE bottom. However, THE bottom could come sooner rather than later if that waterfall continues to spill.
Regardless, whether it is measured in hours, days, weeks or even months still, it is time for the real gold bugs (the ones who long ago tuned out the cartoon characters the sector holds aloft) to be ready to act.
The title’s hyperbole aside, back in Q4, 2008 we had what may be the biggest table pounding opportunity ever, as gold stocks outright crashed even as sector and macro fundamentals sky rocketed. For years now I have written in NFTRH that I would love to see such a combo again.
While it is not yet engaged to even a ‘buy’ yet, let alone a table pounding situation, the combo is progressing as our indicators seem to be falling in line, one-by-one (with a couple holdouts).
While this is just a general post, I will say that it is time to be glad you tuned out the easy Indian Wedding→China Demand→Strong US jobs = inflation = institutional panic into gold style promotions in favor of the old boring view that it is only going to be an oncoming economic issue and attendant loss of confidence that will do the trick.
While remaining bearish based on incomplete sector and macro fundamentals and technicals, I only pressed the short side the other day after making this GDXJ bounce post. GDXJ was do or die and I thought it was worth a shot since, as was noted in the post “Gold stocks (as a sector) are bearish until initial resistance is cleared and then bigger picture bearish until the declining 200 day moving averages are cleared (and held).”
And that was not even including the incomplete fundamental picture.
At that point I added a short against 3x Junior Miner bull JNUG, to go with the existing short against Senior Miner 3x bull NUGT. Today I covered the NUGT short quite profitably and continue to hold short against JNUG.
Don’t get me wrong, NFTRH’s stance has been to leave the sector the hell alone because I am not a day trader and will not pretend to be one, potentially to other peoples’ harm. I am just a risk-o-phobe trying to call the turns in the markets, short and long-term. Traders can do what they wish off of the analysis.
So the NUGT short, which was leveraged against the likes of GDX is covered right at the next support level we have been tracking since way back before the “drop dead gorgeous bull wedge” (that wasn’t) was even a glint in its promoter’s eye. When this thing lost the MA 50’s in May it was cooked, especially after retesting the EMA 50 and failing on a bear flag at the beginning of June. GDX had better bounce here or the decline is going to wipe out those who buy promotions instead of reality.
As for the Junior ETF, it looks much worse as the breakdown continues, but support is well lower. Since my area of interest in buying the washout is in the junior and exploration space, I retained the JNUG short without as much worry about its profitability, which is good now, could get much better or could put a hurt on with the next sector hype operation. It does not matter because barring an outright crash to our most bearish levels for the sector, in which case I’d book a great profit, short positions may well be there to oversee a coming acquisition process, assuming fundamentals look like they will come in line. *
Regardless, those in cash and looking to buy the sector may finally get the chance fairly soon. However, it may come from well below the support levels shown above. Only week-to-week development of the plan will provide answers on that.
* Funda are not nearly all in line, but using the Palladium-Gold ratio as one example, something is beginning to happen on the macro and while the summer can get woogley for bulls and bears (regular stock market bulls and bears, that is), it now seems to be a matter of months before changes will be apparent.
For all you gold stock sports fans…
GDXJ is bouncing, but has a lot of work to do. I have marked that neckline as resistance, but actually it is support to a very not bullish looking pattern.
GDX is similar. Gold stocks (as a sector) are bearish until initial resistance is cleared and then bigger picture bearish until the declining 200 day moving averages are cleared (and held).
I continue to look for some combination of sector funda, macro funda and technicals as a buy signal. Alternatively, if the gold stock sector tanks badly and the macro funda come in line (ala Q4 2008), that’s a buy opportunity as well. Patience my friends.
As currently ‘risk OFF’ gold and silver prepare to get thrown out of the bull party (celebrating a bankrupt country’s pending agreement to play ball) once again…
…we conjure some stuff that some in the gold “community” were considering last week.
For reasons of decorum I won’t name the source, but the following was written on a chart presented in the weekly free ‘analysis’ of a writer who has somehow managed to do two things all through the gold bear market; 1) remain bullish and 2) always sound authoritative and flat out right. That is some trick. Never have I seen a mistake admitted.
“GDX is sporting a drop-dead gorgeous bull wedge pattern.”
NFTRH 348 summed up wedge patterns thusly…
“This is a convenient opportunity for us to be reminded again that Wedges, either bullish
falling or bearish rising, are among the most hyped things in TA. And when they do
work out, they only have relevance for 1-3 days, assuming the chart is a daily like this
Here is the state of the “drop-dead gorgeous bull wedge pattern” at yesterday’s close.
NFTRH 348 continued:
Here are some facts…
• HUI lost the key support parameter of 160.
• HUI is below the 50 and 200 day moving averages.
• MACD and RSI are bearish.
• HUI broke out of the “drop dead gorgeous bull wedge pattern” and then soiled
itself the very next day.
• Key support levels now are the November and December lows, just as we noted
• HUI is bearish until proven bullish, technically. Not the other way around.
I am not trying to be like ‘hey look at me, a genius’. I am trying to be like ‘hey, this was obvious and I have got to wonder who on earth is still taking the bait in the gold “community”‘.
When there is no more bait and when the fish stop biting, the precious metals will be ready. I am not bearish gold or silver on a risk vs. reward basis given other factors coming into play, but as we have been noting all along certain indicators and macro fundamentals have just not registered yet.
The way the markets are going, that could change in a flash (today, next week, next month?), but you don’t sit out there spouting dogma with your capital on the line, waiting for the change. You gather indicators, funda and technical data points and build your case. The gold “community” may have to wait until the stock mania is fully expressed, again, whether that is today, next week, next month or…
We just don’t have answers, so it pays to just admit as much and do the work in an ongoing way without the need to provide easy answers every step of the way.
 Durable goods fall 1.8% in May, and gold gets hammered further. But this is actually a positive to the real, long-term bullish scenario for gold. The one that ignores cartoons about Indian Weddings, China Demand, strong US economy pushing up prices and sending institutions running for gold’s inflation hedge, etc. etc. etc. We are of course talking about a counter-cyclical environment.
The precious metals are wobbling at this moment. Here is the live view as of 9:00 US Eastern. Gold is making a negative move in pre-US open. The drop below April’s low must be reversed quickly or it’s the Ignominy Express once again. On the plus side, silver still thinks it can it thinks it can…
We noted in an NFTRH update on Monday that this week was full of data and combined with FOMC, was likely to be very volatile. Check.
Let’s see how the dust has settled at 4:01 US Eastern.
 ISM just out with a flat 51.5%, but a notable bump in exports (ref. USD correction)
Improving Macro Backdrop
In light of a shifting global macro backdrop that we can finally sink our teeth into with respect to a bullish orientation on the gold stock sector, I thought it might be a good idea to publicly post some bottom line thoughts from this week’s NFTRH report.
The report went into great detail to explain why more fundamentals that matter are starting to come in line, after the chart below refused to make a signal against our big picture view of global economic contraction, which has been the biggest key for the counter-cyclical gold mining sector.
During the worst of the gold sector cyclical bear market we used Gold vs. Commodities to gauge a higher low to the 2011 low, which despite perceptions of the time, kept our longest-term macro view intact (as noted to subscribers several times, if Au-CCI had broken down we’d have had to admit that the view had failed, no if’s and’s or but’s).
The moving averages have triggered, a higher low has been made and the long-term thesis is being confirmed.
Hence, a bullish stance on quality gold mining operations (a unique counter-cyclical sector) has finally come about and the relevance of this chart of HUI vs. the S&P 500 now means more than simply one market crashing in terms of the other. It means RISK vs. REWARD is on the side of the counter-cyclical gold mining industry vs. the cyclical broad US stock market.