Running of the Gold Bulls

The 'inflationista' bulls in mining stocks, that is...

WE HAVE been on this rally in gold-mining stocks since chartists far and wide sounded the alarm on the false breakdown and whipsaw that cleaned out the sector in mid-December, writes Gary Tanashian in his Notes from the Rabbit Hole.

The plan had been for a pullback to shake the tree and that is exactly what we got in the HUI index of gold miners, to the noted green dashed support line.

While suggesting pure traders take profits at the initial target (195-200) I had done only very minor profit taking before the pullback, and as noted in the Trade Log for NFTRH, was buying during and just after the hit of the dashed support line.

HUI makes a good – if blunt – guide for the sector. Let's look at the longer-term 'perspective' views that we have kept at the forefront in NFTRH.

The monthly chart has for 1.5 years now been instructing that the chop and grind after the summer of 2016 is a consolidation to the impulsive leg up in the first half of that year.

Everybody got aboard back then and it happened with too much force and momentum...and it happened amid badly deteriorating fundamentals! This flag or right side inverted shoulder had a job to do and that was to kill everybody's spirits. But through the endless drudgery we have noted all along the way in NFTRH that it appears to be a bullish consolidation.

Another prospective big picture is of the HUI/Gold ratio. We have been watching this pattern form since the initial rally blew out in mid-2016 as well.

Can you imagine the bludgeoning over eager and/or committed gold bugs have taken, and the frustration of overly skittish ones who got flushed in December?

Meanwhile, nominal HUI and its ratio to gold simply lumber on. Markets move slower than our hyper kinetic brains and they don't care what we think we know on any given daily or weekly basis (aided by the media's hysterical inputs, no less).

Ah, but all of the above are just charts. The whole reason we did not get shaken out of the rally is because there are other short-term factors involved. Those were seasonal, sentiment and Commitment-of-Traders related.

As for the most important aspect, the macro fundamentals, a quick look at some gold ratio charts in my list tells me that things are improving there. But due to the big macro party the improvement is not yet substantial.

For now, the precious metals are rising with the 'inflation trade'. When the hysterics fade and inflation traders are one day sent to walk the plank then it will be time for the real distinct bull market in the PMs, probably after a flush of some degree with said inflation trade.

It is tradition in the gold sector; the periodic running of the inflationist gold bugs. Beyond that, there is a rhythm in play and the majority will not dance to it.