Pivotal Juncture For Gold Stocks
Gary Tanashian | Jun 13, 2022 12:16AM ET
With FOMC on tap with an upcoming .5% rate hike, gold got hammered and bounced back with a vengeance on ‘CPI’ Friday.
The Fed will raise the Funds Rate at least .5% this week. So says not me, but the wise guys whose job it is to correctly anticipate FOMC policy. Indeed, a full 20% of raders expect .75%, up from our last check on June 3.
Meanwhile, the gold price (futures) was unceremoniously shoved below the daily chart’s 200 SMA before pulling its bounce back routine on CPI Friday. Check out that reversal volume. This is notable stuff and with FOMC in the wings, it is doubly so.
To NFTRH, unlike many gold/commodity observers, gold is far different from the other inflated stuff. It has far more counter-cyclical aspects to it than copper, industrial materials, energy commodities ,and even to a degree, silver .
As the latest CPI inflation reading comes in (click the graphic below for the full report from BLS) with economy-compromising data (among other things, real wages are falling and consumer sentiment is taking a big hit) the backdrop is stagflationary, not the long-since aborted but previously perceived ‘good’ inflation that drove stocks up and out of the 2020 pandemic crash.
From day one (of NFTRH history, nearly 14 years ago and counting) we have noted that gold is unique and as they leverage the macro either positively or negatively, gold stocks— especially miners— are even more unique.
The long phases of gold miner under-performance to the metal are born of the fact that there have been long phases where central bank-sponsored inflation have worked toward pro-cyclical ends.
Now, amid the oncoming Stagflation (ref. this post from May 2021) and the Fed, tardy to its tightening regimen, but now forced by the market into full frontal hawk mode, ready to raise rates again, comes a potential (important word; gurus making predictions should be tuned out as the carnival barkers they are) turning point.
Get The News You Want
Maybe gold’s impressive in-day move is just that, a notable move during one day. FOMC is up next and that’s often a tough one for the monetary metal that would shine a light on the monetary shenanigans that the Fed, and by extension, scores of financial advisers and the financial money management industry, live by.
Here is a reminder of the weekly chart situation in gold. The metal has been hammered along with most other items during the Fed’s tardy but violent hawkish turn . But the ‘handle’ breakout has held, as has key support.
Handle you ask? Well yes. Since mid-2020 when projecting the need for gold to take a corrective breather we had been labeling the ensuing correction as the handle to a bullish big picture Cup.
The gold price broke out of the handle in February of this year, put in a hard test of the breakout and now—amid the most hawkish projections yet for the Fed—it is acting unique compared to cyclical and inflated markets. As noted earlier on Friday in the NFTRH Trade Log:
But on a day like today, insofar as the uniqueness persists I take it seriously. Patiently, but seriously.
Especially since the monthly chart is and has been bullish since well before we projected the mid-2020 correction/consolidation. There is one thing and one thing only that I do not like about this chart. That thing was the failure to make a higher high in March to the 2020 high.
It’s not a major issue, but it should be pointed out anyway because it would add an alternative view of a double top should gold unexpectedly fail. Forewarned is forearmed and all…
Bottom Line
This does not mean to run out and buy gold stocks right this minute (I did add a couple premier royalty companies to my one core miner and core smaller royalty already held), but it is something to watch for as we enter FOMC week.
With the economically corrosive aspects of the current stagflationary environment, and with gold already out-performing stock markets and some commodities it is time to look for change. That change will not be toward the type of inflation that lifted so many cyclical boats out of the 2020 quagmire.
Gold and especially gold stocks (ongoing analysis in weekly NFTRH reports) are counter-cyclical. We have been noting forever and a day that the macro fundamental picture for gold stocks is incomplete, but with so much happening now on the macro and with the seasonal due to bottom in July, well, if you’re not paying attention now you’re just not paying attention.
/h2
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.