Stocks topped the scene since the index doubled during April-May
Correction of gold stocks from a seasonal point of view
Now we start this article which gives updated information on gold stock correction. Here are the recent seasonal trends for the VanEck Gold Miners ETF (40681}). I chose to use the years from 2018 to the present just to keep the graph clean and to show that 2023 is shaping up by the norm in the post-pandemic era.
The years 2019 and 2020 are actually outliers, even outside the historical boundary for this chart (2018). Pre-2018 trends are very similar to the benchmark below.
The years 2018, 2021, 2022 and even 2023 are more in line with the standard.
If this criterion applies in 2023 (orange line), the gold stock sector will decline in September.
Seasonal Performance of the GDX Index
Correction of gold stocks through the perspective of the HUI/gold ratio
For another subscriber’s request, the GDX/GLD ratio chart dates back to 2001, but I used the HUI/Gold ratio (HGR), which, unlike the GDX/GLD, dates back to that time. I also added an important macro consideration to the chart, the Treasury Term Yield, also known as my trusted “always on” view of the term macro or macro. This is not an all-and-all indicator, but it is certainly a great indicator. So, below are my thoughts on this indicator as it relates to the HUI/Gold ratio.
Beginning in 2003 (not coincidentally the year in which gold mining fundamentals were discarded in favor of a gold stock bubble, during the 2003-2008 inflationary period) the explosive rate of growth was closely related to the decades-old trend of declining long-term Treasury yields, which I had been considering for quite some time. Long one of the main tools for the Fed to inflate the system as much as it wants is because of the anti-inflationary signals of bearish Treasury yields. In other words, the Fed played the hero every time there was an uncomfortable drop in inflation. This is another way we express the fear of deflation.
The year 2022 has killed that trend and completely destroyed this tool used as a backbone of sorts for what I have called the era of “inflation on demand.” Goodbye, on-demand inflation era.
However, despite the fractured trend, gold stocks continued to underperform gold while yields rose to a new high. This takes me off topic of the article which is patch update. But suffice it to say that something has changed and when that change weakens the ability of central banks to inflate economies and failing markets, I think we will also see a change in the direction of the growth rate. However, most people interested in gold are inflation-centric, so they will probably get confused and start selling as the market is breaking the inflationary cycle. or many of them.
Contrary to the views of the majority of analysts (and the herds that break out behind them), the gold sector will not be fundamentally ready until the mechanics and effects of inflation are broken out for all to see. One effect of inflation is the stock market, which remains bubbling (at least until the recent pullback, which made sense amid unsustainable bullish sentiment). The other effect is the economy, which remains healthy. Each of these effects has been touted by policymakers with full license for inflation in 2020.
I can and probably will one day write a separate article on this aspect alone, as the analysis includes many other indicators that need to form a clear guide forward. But first we have to understand the process of change. There will be plenty of time to get details on the new macro as it unfolds and provides its own beacons.
HUI: Monthly chart of the gold percentage
Proper gold mining basics do not include cyclical inflation. Usually, the situation takes the exact opposite direction.
Gold Stocks Correction, Daily Technical Display
For the GDX, let’s look at the daily chart used for reports and updates to guide the process of rallies and corrections since Q4 2022. With all the events the index has been through, the chart is getting a bit crowded, but again, there’s a lot going on. that can be talked about.
Let’s put aside a large part of the previous chart’s history and take the position from the minor (double) top in May. Weekly status updates (both for our subscribers and for me) have given us the opportunity to fully prepare for what’s going on right now.
In jest, I noticed the “death cross” where the 50-day SMA is pointing below the 200-day SMA. Just as I referred to the “golden cross” in January as a warning about the upcoming correction that followed shortly thereafter. To review, anyone promoting such novelties should be ignored, at least until they study the situation better and stop peddling such nonsense (the mainstream media never learns better, as gold and death intersections are a major media harvest targeting less experienced investors). I have painted the current death cross green because if the next outcome repeats itself more often than not, there will eventually be a bullish move coming.
Our long-term target to fill the sub-28 gap was posted on Wednesday. While Thursday witnesses a continuous downward movement. As long as the GDX index maintains a higher low compared to the March low, it is able to reaffirm its upward trend.
Failing to hit that higher low, we will work towards the lower target, which is to fill the 22.72 gap per measure of what could be a head and shoulders top. It’s true that I didn’t make that limit clear, but you can probably see it with the bullish 200-day SMA (black line) acting almost like the neckline. The style is first outlined in our update. It started out as a modern style. But it doesn’t look like that now.
The lower technical line: when holding a higher low compared to March, the uptrend continues. If we lose it, the GDX (far from the false breakout of the bears’ trap) is likely to “fill a gap of 72.22”. In this case, today’s oversold RSI reading could be replaced by an extreme reading amid a worrying opportunity for the chart to move in the opposite direction. But given the moderately oversold degree currently and the hilarious novelty of the “death cross”, a rally from the March low is also not out of the question. And the market alone, neither you nor I, decides.
Conclusion
Anecdotally, I see potential opponents stepping up to buy gold. It means the kind of person who takes courage when others are afraid. It’s fine, but some of the suspects that I see speaking out (through writing, tweets, etc) are people that I’ve noticed usually/always give bullish contrarians in the past. Combine this with the tendency for corrections in gold stocks to end in a lot of drama, I’m not entirely sure if the support associated with the March decline will hold.
But it’s up to the market, and I’m not the one to decide. I’m just a guy who owns a few favorite gold stocks as a hedge. Give me control of the March low (and don’t give me the death cross) or whatever those who are perfectly positioned feel like, all I want is that gap lower. If the gold stock correction stops at/above the March low, I would hedge. If not, I’ll try to keep it at a sexy low level while adding to my favourites, and adding a couple more levels that I covet.
None of this will be beneficial to more than the trade if the overall fundamentals do not improve. But I anticipate that those fundamentals, which have been rattled but not overcome over the past few months, will really do that.
2023-08-18 14:44:00
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