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Folks, it is time.
For the first time since Q1, 2020 and more so since Q4, 2008 the macro is in motion and we are called to attention to distinguish ourselves from the herds. It is time to tune out the supposed experts, the internet conspiracy sleuths and the inflationists, and follow a combination of the real macro-fundamentals that matter, along with the technicals as a guide.
Below is the complete content of the precious metals discussion and analysis in today's edition of Notes From the Rabbit Hole, NFTRH 857. The markets are finally in motion, and that motion has been in favor of gold and by extension, should be in favor of gold stocks - potentially in leveraged fashion- in the months to come.
But it's not going to be a straight line to gold bug heaven, as the analysis points out. I am of course biased, but I strongly believe you need the NFTRH management methods on your side every step of the way, if you are an active gold bug. There is so much bad information flying around out there. NFTRH has proven the ability to cut through the bullshit, of which there will be plenty upcoming.
Folks, I am not that guy. I don’t know where it comes from, but there is a powerful collection of sources out there that seem to constantly pump people up on silver with great effectiveness. I am not that guy.
But I am the guy who highlighted this X post last week in NFTRH 856, noting:
Before continuing, let’s note that the #silversqueezers are at it again. Irrepressible, are those silver bugs. Make of it what you will. Personally, I don’t like it. Never have. To me it is a dangerous mix of conspiracy theorizing and hype. I guess it’s kind of funny too.
I am also this guy:
This morning I got an email from a subscriber assuming that the target of 42 was still active. Well, no it is not. Not based on the Cup pattern. I remind you that I am this guy too:
If I see a pattern, I note it. But that always comes with caveats about what TAs who want to sound really technical call “pattern recognition”. That is a fancy way of saying “ooh look, I see a pattern that gets me excited!”, much like the TA who calls a freak Head & Shoulders with too many shoulders a “complex” Head & Shoulders. No sir, it’s a mutant that you REALLY want to present as something technical sounding.
TAs… picture them in the back room, a couple of them even with propellers on their heads, really wanting you to take them seriously, while the real analysts in the main office joke about them and accidentally on purpose forget to invite them out for happy hour after work (because they act like reverse magnets to the girls at the bar).
Man stares at chart; man sees something on chart. Man tells you about it. Man is wrong a good percentage of times. In this case, man was wrong about the Cup pattern. And it had nothing to do with conspiracy.
The point being, I don’t think there are any TAs out there who have made as much fun of TAs as me. We are not to be taken overly seriously. Especially those of us who really REALLY want you to see the mystical things we see in nominal stock, ETF or index/asset charts.
It is also why I consider TA just one tool of value to be used in conjunction with others.
Silver may well go to 42 and beyond, but it won’t be because of this Cup pattern, on which I was flat out wrong. My response to a subscriber who asked me to cover a few silver stocks, assuming the 42 target for silver is still in play. I will chart a couple of them, but to show their now bearish look, not for the leveraged gains they could make on silver and its off the table (for now) upside target. First, my response to him:
I will try to fit in some silver stock talk, H.
But I am not a silver bull. The target is the product of a TA seeing a pattern. You may know from reading me that I favor gold much more and indeed felt negative when the #silversqueeze garbage came out again over the last couple of weeks. I am simply not the silver bull that so many others are, which is why I don’t give silver stocks much airplay.
I had added MAG (now sold) for its pullback above the uptrending moving averages. It was sold for a small loss on April 1, after the #silversqueeze crap was noted. I am inherently suspect of silver promotions and silver stonks. To me, they are plays and not much more.
The chart has since taken on some damage. This can be a caution going forward for any holdings, in that a classic buy opportunity (ref. Friday’s NFTRH+ update on gold miner, NGD) can be broken. Again, man, charts, caveats!
MAG could recover, and were it a favored gold stock I might have held it, looking to add more lower. But not with this speculative position. I got rid of it while it was intact, and I’m not taking it back now that it is hinting a breakdown. I don’t love silver and I abhor the hype that is hard wired into its market.
These internet sleuths seeing things that evil forces are doing to repress poor silver. No thank you. That said, when silver moves, it really moves. That is why I poke it sometimes.
SVM was a position I took more seriously, and I took a more serious loss of 12% on it on Friday. It has dropped to a support area, and if silver stabilizes, I’d consider bringing this one back, as its operational performance is good. It’s a real company, at least.
But I am looking at gold stocks, first and foremost, in the precious metals patch. Always have, and probably always will.
Silver bugs talk about their junk coins (I actually held my old bags of junk quarters and dimes dear before selling them many years ago, and still have a few rounds laying around). They say things like “keep on stackin'”, with much bravado. Cause silver is gonna go to 200, like any day now! If gold is at 3000, silver HAS to go to 200, 500, whatever. #bullshit
Gold
Gold is value. Silver is a hybrid tag-along, that is relatively burdened in times like this with its more pro-cyclical, pro-industrial utilities. It is also often a byproduct metal, mined and processed as part of the process of refining other industrial metals.
On the positive side, it is used in medical applications, clean energy and is also thought of as a monetary metal. But it is not gold. Silver is more readily produced, abundant but also more consumable. It has its investment rationale. But as last week proved yet again, when the chips are down, silver is not gold.
Gold is value. It is value when it is floundering, as in the 2013-2019 phase of an economic boom cycle. It is value today, as its price gets marked up in times of economic stress and waning confidence. I cannot make these points strongly enough. I’ve made them over the years, but today it bears repeating because of the man throwing Monkeys and Spanners into the spokes of the macro wheel and the hype that is flying around at a 1000/mph.
These are pictures of gold doing exactly what it should be doing at a counter-cyclical time like this. Even as its nominal price took a $77 (2.5%) haircut on Friday.
Gold Mining
Despite the drop in the gold price last week, what is happening now is exactly what is demanded if we are to follow the proper fundamentals and capitalize on the counter-cyclical gold stock sector. Again…
Everything is currently in place. However…
NFTRH is not a gold price pump house. There are plenty of those all over the internet. People obsessed with the price of gold, the gains gold will make. “Just keep on stackin’!”
Gold is monetary value and it is insurance. It is also pretty and heavy. But that is beside the point. It is gold’s RELATIVE value in times of stress that matters. This is a boring concept that all too many do not consider because they are little more than gamblers. Traders. Speculators. Promoters. Greed mongers.
If we are going to grind out a real investment case (which in gold stock terms means a much longer trade than usual) in a liquidity constrained macro, it is going to be a product of the real price of gold as measured in the ratios of Gold/Silver, Gold/SPX, Gold/Oil, Gold/Copper shown above as well as many other measures of crashing confidence by the bubble herds.
Using Gold/Oil as an important example, gold mining is energy intensive. Gold (the product) has made its surge to target (3000+) while oil (the mining cost input) has tanked within its ongoing downtrend.
Aside from debunking yet again the “gold is silver is copper is oil is hogs” promoters (“commodity super cycle” touts) who implore their herds to buy real “things” (tangible resources) as opposed to the evils of paper (like stocks and bonds), seeing the market the way we do allows us to be free from that dogma, free from the grip of lazy thinking gurus who simply want to pitch us and take our money.
If stocks are part of the cyclical world (at least T-bonds have a counter-cyclical utility) and commodities are cyclical assets (they are physical building blocks of economies, as I have taken pains to point out repeatedly over the years) and that cyclical world is falling apart, why the fuck would you want to hold commodities? At least prior to whatever inflated ‘rebuild’ phase (both literally in war torn countries and figuratively after Central Banks start trying to spray the inflation hoses again) may be in the future?
Gold Mining Reporting Season
If we are right to be viewing this correction in gold stocks a “buying opportunity”, and I think we are, consider that gold has done this vs. one important cost-input driver, crude oil during the quarter soon to be reported. That is theoretical performance hard wired into the miners, assuming any individual miner does not screw something up, which is pretty much tradition for the gold mining industry.
Gold/SPX, Gold/Materials, Gold/human spirits and hopes for prosperity? These ratios are all rising. The macro-fundamentals of the gold mining industry are rising. I don’t say so. The Macrocosm says so. And let’s leave aside from now that these ratios have only jumped higher since the new quarter began on April Fools Day.
So where is the buy? Well, we discussed this in Friday’s NFTRH+ update on favored miner NGD. Could be here at the SMA 50. Could be lower at the SMA 200. We also discussed it in Friday’s pre-market article on gold stocks in general, using GDX.
Here is the GDX daily chart at the close. It is putting a hard test on the 50 day average (target #1). I think it’s got a better than even chance of dropping to the 200 day average (target #2) and a fill of the upper gap. People can cry “manipulation!” all they want, but to me it is the wrong kind of gold bugs puking out. With deflationary winds starting to blow, the inflation bugs (which is most gold bugs) are starting to panic.
This echos June of 2002, when HUI made a high of 155 and then dropped 40% into July, 2002 making a low of 93. That took place within the bull phase of 2001-2004 (which began amid a deflation scare, as is anticipated for today’s situation), when HUI made a low of 35 in November, 2000, and made its high of 258 in December, 2003.
That was a bull phase of 350%. Within it came a gut wrenching decline of 40%. That is the volatile way that gold stocks roll, folks.
I am not saying GDX/HUI would drop 40% on the current correction, which is only a sharp one day news-driven, margin-driven, hype-driven pullback at this point. But understand that we can have a pure fundamental view, but the market is going to do what it is going to do in the interim.
Personally, I view the SMA 50 as a “nibble” opportunity and the SMA 200 as a “buy” opportunity. In the Q4, 2008 crash (from a high of 519 earlier that year) I bought hard at HUI 250 as HUI got cut in half, then expended the rest of my powder at the bottom, HUI 150. It was scary, catching those falling knives. But it was ultimately very rewarding, as the buying was backed by a view of the proper fundamentals. Fleeting though they turned out to be as the rest of the macro was soon effectively inflated by the evil genius of Bernanke and his global accomplices.
Not to tout (well, yes to tout I guess), but this email comment I received some years later pretty much sums up that time:
I don’t know what Bob Hoye (from whom I learned the concept of the Gold/Silver ratio and its meaning to markets) was doing, but I was buying and praying that my fundamental view would carry the day, which it ultimately did. I remember clearly thinking “Oh jeez, I’ve got subscribers depending on me not to screw this up”. NFTRH was only a month old then! Ah, good times.
Today we have the fundamental planets aligning. But price will be price and funda will be funda. Eventually they will meet. But humans are humans and in the financial markets especially, I don’t like very many humans and don’t want their stink on me. I respect relatively few of these humans because I suspect their motives and/or I don’t respect their fundamental outlooks and/or I think they are over-intellectualized “experts”.
As I get older, I am less varnished and don’t really care whether I am polishing the narrative. Especially in times like now, when the rubber meets the road.
Bottom Line & More
My analysis is my own. I sense that a lot of people are promoted to the hilt out there. Promoted with ill-conceived fundamental outlooks and assumptions. You either get and agree with my outlook or you do not. It is built for the big picture. Not the daily and weekly ups, downs, noise and hype of the moment. Maybe some parts are of value, while others are not. But the segments above are core to what I am as a market viewer… and as a gold bug.
As symbolically and effectively indicated by the smash through the limiters by the 30yr Treasury Bond yield limiters (moving averages) in 2022, it’s a new macro with new rules. This ain’t Grandpa’s “stocks for the long run” market anymore, because it’s not going to be as effectively propped by supportive inflationary policy. At best, the inflation will work to boost some areas (critical commodities, etc.), but overall it will probably be Stagflationary. But first, the deflation scare (if not actual and long-term deflation) we have anticipated ever since yields topped out and yield curves began steepening.
On the big picture, gold (regardless of its nominal price) is ramping in relation to all things cyclical (as well as US and global currencies). It is in those relationships (gold’s “real” price) that gold mining fundamentals will emerge and eventually be discovered by a wider segment of the herd. But buying gold stocks early (in the scheme of much higher price potentials to come) can hurt. In 2002 it hurt by 40%. If GDX were to drop to the 2nd target at or around the SMA 200, it would be a solid decline of 16% or so. Not bad.
That is the favored view, especially with what I think will be a solid Q reporting season upcoming. But the macro is massively in motion, a man is throwing Spanners and Monkeys around, and now other countries are throwing them right back. NFTRH is not a gold stock rag. It is not an ideologue. It is nothing other than a caller of what it sees. Right now it sees a bullish plan with a buying opportunity upcoming.
NFTRH also saw that in its first month of operation as the service started on September 28, 2008. Indeed, that is why I pulled the trigger and did it. It was “now or never” because everything was in motion. With the exception of a brief moment in Q1, 2020, I have not felt like this since Q4, 2008. I nicknamed those events Armageddon ’08, as I nickname many phases and indicators. In Armageddon ’08 you could be part of the herd, or you could stand apart and in a measured way, do things apart from the herd.
I’ve tried to do it that second way ever since. Often it has been difficult because in the robo-inflated, perma-bull markets we’ve mostly had from 2009 into 2025 what I had to report was robo-bull. Uptrends tended by policymakers at the Fed and in government. I did not like it because anybody could do it. Just assume they’ve got your back and speculate, baby! Well, I prefer the current Spanners and Monkeys macro. I get the opportunity once again to distinguish vs. the analytical herds.
Final Thoughts on the Miners
Let us not succumb to conspiracies and belly aching. The gold stock sector was again frothy from the standpoint of a fairly reliable indicator, the BPGDM. We noted it well ahead of time and should have been mentally prepared, in whatever form that takes. This sector knockdown is happening within a bull market and bull trend in the BPGDM. It indicates a pullback/correction that should prove to be a buying opportunity.
HUI had completely caught up with gold’s out-performance to “inflation expectations”. So it can be viewed as having accomplished its goal in the short-term. But as long as gold keeps rising in relation to inflation fears, the picture should remain fundamentally sound.
Let’s end on a note where the noise is quieted down and this long-term macro picture tells its story. The story has been one of bullish phases in the HUI Gold Bugs index that occur when the Fed is either dropping interest rates or had just recently dropped them. So, if you think the Fed is going to roll over in the coming months, you may also think that whatever low Huey makes in the coming weeks will be looked back at as a significant buying opportunity.
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