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What Rising Gold Prices Say About Inflation

Gold

Contrary to majority opinion, gold and especially the gold mining stocks that leverage its macro status are not about inflation, especially cyclical inflation that runs with a positive economy.

Making an appropriate return after a few months on hiatus, ladies and gentlemen… the Macrocosm.

Gold stocks are about counter-cyclicality as gold rises vs. US stocks…

Gold rises vs. Global Stocks…

Gold rises vs. commodities…

Especially vs. mining cost drivers, like energy/oil…

And mining cost drivers like Materials suppliers…

In a counter-cyclical macro signal, gold is trouncing its metallic bros in the base metals patch.

While we expected, and got a significant reaction in the precious metals this week the view has remained steadfastly big picture bullish as long as the real macro and sector fundamentals – a few of which are represented in the charts above – remained intact. Aside from this week’s theatrics, each chart above is in a daily uptrend as each chart’s 50 and 200 day moving averages are sloping upward.

While we anticipated well the recent upward explosion in the Silver/Gold ratio (our ‘first spark’ indicator to the next inflation phase) we noted in NFTRH over the last 2 week that it was coming within a downtrend and had reached a logical point to halt its hysterical advance, at least for a while. After all, the trend chasing momo players were all aboard by the time Silver/Gold hit the down trending SMA 200. Time for the rinse and time for a cool down in inflation signals (which we’d been noting over the last few weeks had failed to gain traction).

The title of this post states that the gold miners do not mind the fade in inflation expectations at all and the charts above – and indeed the components of the Macrocosm itself – explain exactly why.

Ironically, had inflation broken out (with silver leading gold) we’d have probably remained bullish the gold sector (to technical targets, at least) while becoming less fundamentally positive. That’s the way bull phases roll in the gold stocks. They lead the whole macro mess out of deflationary situations well before the rest of the play catches on in other assets and markets.

By Gary Tanashian

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