The macro has moved through a time of moderately rising inflationary concerns when economies were cycling up, many commodities were firm and risk was ‘on’. Contrary to the views of inflation-oriented gold bugs, that was not the time to buy gold stocks.
As I have belabored again and again, the right time is when the inflation view is on the outs, gold is rising vs. stock markets, the economy is in question, risks of a steepening yield curve take center stage (the flattening is so mature now that steepening will be a clear and present risk moving forward) and by extension of all of those conditions, confidence declines.
In short, the improving sector and macro fundamentals I’ve been writing about for a few months now continue to slam home as the cyclical world pivots counter-cyclical. And what do you know? Gold stocks are reacting as they should. Well, it’s about time, guys!
Continue reading Gold Stocks Acting as They Should During Market Stress
All through the bear market hopeful rationalizations were served up for a bullish case on the gold miners. All through the bear market we warned people not to eat that rotten turkey!
China demand, the China and India “love trade”, cyclical inflation driving up the prices of commodities and resources and the classic… economic growth in the US will create cost-push inflation through wage increases with the smart money seeking inflation protection in gold. All of those and a veritable Turducken of mishmashed ingredients were served to gold bugs as a decidedly not delectable appetizer before the main course.
But with a top in risk ‘on’ global markets now finally including the US (pending any holiday relief bouncing), the planets are aligning per the fundamentals that matter. This will drive up gold’s relational price to cyclical risk ‘on’ assets and improve gold mining bottom line operations (reducing miners’ costs per ounce of gold produced).
The sector will also be more appetizing to a much wider range of investors, now that their perceived sure things in the FAANGs and other momentum fueled, ‘can’t miss’ areas (like the Semi sector, which we warned on long ago: Semi Canary Still Chirping, But He’s Gonna Croak in 2018) are no longer working.
Continue reading Thanksgiving for the Proper Gold Stock Fundamentals
As we have noted over the many years of the gold sector’s bear market, the gold miners will not rally for real until the real sector and macro fundamentals come into place. Those fundamentals do not include commonly promoted inflation, China/India “love” trades, a US dollar collapse or especially, war, pestilence or any other human misery than economic. The more astute gold bugs do not fall for that.
The gold miners are counter-cyclical as they leverage gold’s performance (whether positive or negative) relative to cyclical assets and markets. Hence the handy picture showing the key fundamental items with the 4 largest planets orbiting the golden sun being the most important.
So the 3 Amigos (of the macro) were saddled up last year in order to guide us to the point of macro change. Linked here is the most recent update from October 19. In this post let’s look at just one macro fundamental indicator among several important macro and sector fundamentals; the ratio of gold to developed stock markets.
Continue reading Gold Stocks Will Benefit From Cyclical Change
By Steve Saville
A few years ago I wrote a couple of pieces explaining why gold mining is a crappy business. The main reason is the malinvestment that periodically afflicts the industry due to the boom-bust cycle caused by monetary inflation.
To recap, when the financial/banking system appears to be in trouble and/or economic confidence is on the decline, the perceived value of equities and corporate bonds decreases and the perceived value of gold-related investments increases. However, gold to the stock and bond markets is like an ant to an elephant, so the aforementioned shift in investment demand results in far more money making its way towards the gold-mining industry than can be used efficiently. Geology exacerbates the difficulty of putting the money to work efficiently, in that gold mines typically aren’t as scalable as, for example, base-metal mines or oil-sands operations.
In the same way that the malinvestment fostered by the creation of money out of nothing causes entire economies to progress more slowly than they should or go backwards if the inflation is rapid enough, the bad investment decisions fostered by the periodic floods of money towards gold mining have made the industry inefficient. That is, just as the busts that follow the central-bank-sponsored economic booms tend to wipe out all or most of the gains made during the booms, the gold-mining industry experiences a boom-bust cycle of its own with even worse results. The difference is that the booms in gold mining roughly coincide with the busts in the broad economy.
Continue reading The Myth of Gold Stock Leverage
By Otto Rock
The day after the big washout selling event in mining stocks last week, high volumes and toxic-level dumping by big houses all around, I stuck this on Twitter:
Continue reading The Rebound Of Precious Metals Stocks: Put-Up or Shut-Up Time
By Otto Rock
I stuck this on the Twittermachine Friday evening, after the normal end-week data dump had filled my XLS charts.
You’re not supposed to get much comeback from a wonky financials post on a Friday evening but from the number of RTs and Likes, it’s not just me that thinks this is odd. Text of Tweet here:
Something bizarre: The last 7 WEEKLY closes of $GDX are:
May 18th: $22.19
May 25th: $22.31
June 1st: $22.31
June 8th: $22.36
June 15th: $22.23
June: 22nd: $22.18
June 29th: $22.31 A spread of 18c?
A 0.8% max variation over 7 weeks? 3 closes out of 7 at exactly $22.31? WTF?
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