Instability is fun if you're the right side of the market...
The INFLATION trades are fading and gold is ascending to its rightful place in the disinflationary macro, writes Gary Tanashian in his Notes from the Rabbit Hole.
The favored NFTRH plan is working out well as we planned the Q4 2022 to Q1 2023 rally back in November and – as lumpy as it has been – it is intact to this day. Amid the fade in the inflation trades, our projected leadership (Tech and Semi, amid a disinflationary interim Goldilocks theme) is fully intact as well.
But what about gold in this disinflationary period?
Goldilocks is not typically friendly to the metal that represents retained "value", because a Goldilocks economy can burp up plenty of speculative opportunity elsewhere. Well, note the word "interim" before the word "Goldilocks" above.
This is not expected to be the 2013-2019 period that became a full fledged macro phase. It's interim, temporary and maybe a nice opportunity for the bear market to suck in a lot of FOMOs (I am long key Tech stocks and even QQQ, but not as an investor). It is enjoyable participating for now, as with this item where I got back to my stock charting roots.
So have a look at gold laboring along in Tech terms with the ratio of the GLD gold ETF's price versus the QQQ Nasdaq index. That folks, is what we call an intact uptrend.
Gold is a full participant in this pleasantly disinflationary phase because in my opinion it will not be pleasant for a full cycle (eg, 2013-2019). Rather, I expect Goldilocks to fail after a much needed and anticipated rally in Tech as Tech leadership terminates one day at higher levels.
Gold is simply marking time, which is what the metal has done for time immemorial, uptrending in terms of the strongest equity market sector of which I am currently bullish.
If QQQ breaks up from the flag, Tech/Goldilocks theme is proven. Insofar as I'd be bullish, Tech is favored. Has been all year.
But negative signals are brewing beneath the market's surface. All bets are off if technical analysis levels are lost on the indexes.
But the real macro play is going to line up later, when Tech eventually succumbs and we get this logical adjustment in the markets over with and bring in a critical mass of "happy days are here again! Bear market over!" FOMOs on board. It was originally and still is projected to be a bear market rally, after all.
A look at key commodity and stock markets plus the "inflation expectations" gauge (using associated ETFs) as adjusted by gold (using GLD) shows that the inflation – which we've been projecting for failure since spring of 2022 – is well on its way and completely on plan. All along I have advised that readers consider turning away from boilerplate analysis talking about gold and inflation because that was not going to be the play, and sure enough, it wasn't, and isn't. The chart includes a rough measure of global currencies adjusted by gold as well, for a global perspective on the bull market.
The play – assuming new trends remain intact – is a unique gold mining sector once Goldilocks runs her course. With Tech looking so constructive (per the tweet above) and actually starting to bull since, gold stocks are not yet unique. But it's coming. The trends on this chart say so.
As important examples, what do you suppose will happen to gold mining bottom line operations – impaired as they were during the post-2020 inflation cycle – as gold continues to perform strongly in relation to cost-input commodity crude oil/energy? What do you suppose will happen to investors' mindsets when they see their played out stock markets greatly under performing the miners?
Yes, exactly. You'll have a unique sector performing for the same reasons most others are not.
After a tough stretch managing a whole lot of nothing (to the untrained eye), it is now time to be at attention and to separate ourselves from the investor herd, just as the gold mining sector will do from the herd of macro asset markets in 2023.
Over the last few weeks NFTRH has gotten a lot more fun to write because instability is fun. Seeing autopiloted thinkers (including the average inflationist) bewildered is fun. Movement and change are fun! Stasis and autopilot thinking? Not fun.