GDX’n : updated May 7th

Of late the miners (GDX) have been moving up against the underlying, Gold is stalled about 1950. The P&F chart of Gold shows a high pole warning pullback, which throws cold water on the $5000 gold blowoff.

Here is GDX on P&F with some comparisons, Post Covid debacle ALL stocks moved higher, (see Pumping Jerome). 36 might serve as the inflection point on a pullback, if it starts breaking that support then the right window seems more likely. Right window moves slowly, left window higher, happens more quickly.

If price holds and rallies then another leg, circa 2020 is possible. One way takes you to 50 (from 40) and the other takes you to 25. It’s not all or nothing, and nothing to say you couldn’t get whipsawed if you bought the 36 pullback, or sold it at 35.

The current headwinds facing gold are rising interest rates and a strong dollar. The tailwinds include the possibility of a recession and more defensive equity allocations and maybe a lack of anything else, like say Real Estate or Crypto to siphon off investment cash. TINA is there is no alternative…

And I want to say Doug Noland laid the premise of no-deleveraging, in a 2018 post, in which he described the complex cross border, cross currency trades that have come to dominate global finance. The notion that a margin call event is going to evaporate collateral value, just does not hold water. The only means by which global monetary resources would shrink is a coordinated devaluation of the forex currencies. This is the permanent ink in the global money supply.

There are of course other scenarios including the direct retirement of collateral which is what the Fed intends to do this summer. A end to deficit spending : a function of aborted government spending programs. This might reverse the roles in Congress, putting Republicans in control of the budget and sending “cultural” messaging back to the Democrats. Cultural messaging is more powerful, and it also would tend to solidify the core of Democratic ideals and loyalty. So is Trump going to switch to the Democratic party if the roles reverse?

Should the real dollar get stronger, less debt fewer deficits, then Gold might have trouble swimming against the tide, interest rates, and the dollar. Point being the expansion of the monetary supply is over (for the time being) and the dilution of the dollar will reverse and if that is the core reason for owning gold, consider the alternatives. Maybe there aren’t any??? Then it might become possible to unwind margin debt, if it hasn’t already come down on it’s own account.

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