GDX: The Gold Mining Sector outperforms Inflation Signals

The gold mining sector is doing exactly what it says Should do amid fading inflation

If you have been alerted to inflationist gold bugs by mid-2020, you are now in a position to capitalize. This is unlike scores of inflation bug buyers who likely sold. In tax loss season, 2022).

Readers of nftrh.com know that this space has written many times about how gold isn’t about inflation. At least, not primarily. This is compounded by the gold miners who leverage gold’s position within the inflated (and occasionally deflated!) macro. The gold mining industry is not about inflation. The gold miners could rise in an inflationary phase as in 2003-2008, but they would be summarily executed in Q4, 2008 due to poor accumulated fundamentals.

This analysis found that the correction in the gold mining industry from mid-2020 to Q4 of this years was completely normal. Excuse making and ghost stories of conspiracy and manipulation to explain why gold miner’s did so badly is what is abnormal. There is a lot of this out there, as you probably know. It’s tradition that makes precious metals complex.

However, gold miners leverage gold’s relationships with the macro, and gold was just as an “also-ran” during an inflation cycle such as the one we had. This made gold mining a less profitable business because it was dependent on high-cost input commodities like oil and human resources. oil, and let’s not forget about human resources and materials) outperformed the gold mine product.

To gain an understanding of the background for the gold mining sector, I often compare gold’s position to other markets. Let’s use the ETFs this week to compare the progress of the gold mine sector with inflation-sensitive and cyclical markets. It will validate the relational gold analysis by comparing the miners’ relative performance.

NYSEARCA:GDX/SPY This chart shows an attempt to change the trend after the bottom was reached over three months ago. It also establishes an intermediate uptrend. It would be a significant step in changing the major trend in GDX/SPY if the SMA 200 was removed, as it is currently trying to do.

GDX/ACWX This is a slightly less successful attempt. The global stock markets have outperformed the US for more than a month, as the US dollar has been in correction.

GDX/DBC It is now almost 1.5 months into a strong rally. It’s a nice confirmation of one the most important rules we follow at NFTRH. This is that you don’t buy gold mining stock in any other way than as a trader during inflation but you do buy during de/de flation if there are corrections due to deflation fears. The broad commodity spectrum is being hammered by gold miners of late, 100% to our plans.

GDX/USO This shows the miners in relation to crude oil, which is one of their primary cost inputs. While USO may not be 100% accurate, it is close enough. It is another marker that validates our view (and invalidates it). ‘buy gold, copper, oil, hogs, etc. For inflation brigade).

GDX/COPX It shows only a small part of the whole picture. Copper and its industrial metals bros continue to hold strong despite the fact that other commodities are falling by the wayside. Copper is bouncing In a downtrend, it’s the season to be cheerful (cue Cramer) and relief by the punch bowl. It’s not going anywhere. It’s not going to last.

Let’s finally take a look at GDX/RINF For a quick view of the gold miners compared to one rough measure inflation expectations. This chart clearly shows that gold stocks have sunk in relation to this inflation gauge. This is not surprising. It is making progress, but it is not surprising. As we have been observing in NFTRH for several months, changing the macro will likely be a process and not an event. GDX/RINF continues to trend down, while nominal RINF remains in a series with higher highs and lower lows. This means that there is an uptrend.

Bottom Line

Like gold’s gradual rise to prominence in the greater macro markets. The gold mining sector is also working with the NFTRH to validate the view for 2023. This view is not inflationary and the main question is between disinflation, or a complete deflation scare.

It will be difficult to manage volatility in such a setting, especially as most gold bugs remain ignorant about inflation. We will manage the progress and process each week. However, any forward volatility aside, it will provide the right backdrop to lock and load buying quality gold mining stocks (I currently have several as seasonal positions, and longer-term ones at best). [edit] As of Friday, partial hedged into FOMC Week along with shorts against a couple of other non-related stock markets indexes.

Side note: Any given gold miner, especially those in troubled regional/political areas, can have its own business execution issues at any time. The sector, even if you just buy GDX, should do well. We have our ultimate upside target to the HUI Gold bugs index, which you may already have seen if your read this site frequently. A selection of the top gold stocks (royalties) should do well in 2023.