Spanners, Wrenches, Steepener and Gold

Cue gold's perfect macro to strike...

A MAN sits in the White house, writes Gary Tanashian in his Notes from the Rabbit Hole.



A different kind of man. A man who does not like diplomacy or going along and getting along with his global counterparts. He likes throwing spanners and monkey wrenches all around the macro.



There may one day be revealed a positive outcome to this, through negotiations. But on the face of it, nobody wins a tariff war. Least of all the biggest consumerist nation on the planet.



Ignore the media panic. It's all noise. It's real, but for the sake of where we are going – and have been indicated to be going for over a year now – it is noise. Recession signals kicked in when yield curves steepened and de-inverted. Always disregard the media's view on yield curves, which in 2023 was that the deep inversion meant imminent recession. The media harvested many eyeballs with that ill-conceived fear campaign as the economy remained firm and the "boom" side of the boom/bust continuum, well, continued.



It's the subsequent curve steepener that gets ya. We married other indicators to the yield curve view in 2024 for a clear picture of an oncoming recession, economic counter-cycle and waning of confidence. These are primary considerations for a bullish fundamental view of the counter-cyclical gold mining sector.



I used the Macrocosm (the larger the planet, the more important the fundamental consideration for gold stocks) for all too many years to illustrate why a proper and sustainable macro backdrop was NOT in place for gold stocks. For much of the last year it has increasingly confirmed, rather than denied a positive backdrop for gold mining.



From 2004 to 2024 the economy was boosted by inflationary policy-making more often than not. And every downturn (most dynamically, in 2020) was met with balls out policy. Hence, Jupiter was never allowed to engage beyond quick events, as policymakers reliably sprang into action to mop up the situation with interest rate and bond market manipulation, the mechanics of money printing and inflation.







Saturn came into alignment as yield curves aborted their deep inversions and began to steepen in 2023.



Then last year, they de-inverted (an economic boom runs with a flattening toward or to inversion, a bust runs with a steepener) and the coming economic down cycle came closer into view. Saturn fully engaged when gold's ratio to the last inflated man standing, the S&P 500, busted upward just recently.



The Gold/Silver ratio is a wild card as silver can sure lead the precious metals complex. But speaking purely as a fundamentalist, gold rising in silver terms is more aligned with proper gold mining fundamentals, since silver has much more cyclical/industrial utility than gold.



All the other planets are in fine form as well. A couple notes:

• Some planets should be larger (but I had to work with the art I had). Specifically, Stagflation, which is a very viable outcome of a global trade war.
• Cyclical Inflation and China/India Love Trades are provided because there were two tiny little planets that needed to be assigned a level of importance. That level is minuscule and is really just for comic relief, especially when you think about promotional interests out there touting these elements as serious gold stock fundamentals to their herds.
• The bottom line is that we are now in the Macrocosm, some 12 years (+/-) after I came up with the pictorial view of what we would look for to be real fundamental gold mining bulls. It is fully engaged.

Gold miners (GDX) had been a card carrying member of the broad stock market rally until the election slammed the counter-cyclical sector on Trump economic optimism. As the realities of the initial destructiveness of a global tariff war become more widely known, the counter-cyclical sector has rallied while the cyclical stock market has tanked. Makes sense, folks.



Don't over-think it. The gold mining case dearly needed gold to outperform the stock market and that is what is happening. By extension, so too are the miners now outperforming the stock market.







Using the monthly chart of HUI, we have noted a painfully volatile bull market that began in 2016. You may recall that back then, by mid-year the initial launch was doomed because silver was leading gold, then commodities and stock markets. It was an inflationary move for the macro. WRONG setup! Silver bugs led the charge and the whole cacophony topped out that summer, after we noted the degrading fundamentals as the pumpers pumped.



Since then Huey has ground its way to a low in 2018, a high in 2020, a low in 2022 and voila, here we are on a wave 5. It is likely that HUI will pause or pull back here at or above resistance. Our minimum target has been to make a higher high to 2020's 373. The operating target of 500 may not be the ultimate target. It's just been the objective we've had since bottoming out at '4'.



Unlike in 2016, the proper backdrop is in play. What we have developing now is a deflationary situation. Why, just look at Treasury bonds, which I've held and increased as cash equivalents, rising nominally and paying income, as illustrated in NFTRH each weekend. The inflation hysteria blew out in 2023.







I do expect the 30-year Treasury yield "Continuum" (another of my indicators that has a nickname) to find support prior to the next phase of inflation. But first, a deflationary liquidity episode despite or maybe because of the man throwing wrenches all over the place. Later will come the next inflation phase, and it will likely be of the Stag variety. In other words, economically corrosive.



Above is the state of the Continuum, which I expect to decline as the Fed weakens and the macro contracts over the coming months. Take note of the red trend lines that had so well resisted the yield for decades. It was busted in 2022 and has now turned up. A decline in the 30-year yield to approximately that level (roughly the 3.5% area) could be all she wrote for the deflation play before the next and more painful inflationary phase engages.



Gold mining stocks are counter-cyclical. A counter-cyclical backdrop was indicated to be engaging last year, but the Biden administration's predictable fiscal operations kept the macro picture intact into the election. This was a major theme we carried all though 2024, right into November, after which the theme was that Trump would be left with an unwinding macro.



I just did not know about how many spanners and monkeys he was planning to throw around to help it along. NFTRH is locked in on events that are in play because they are what we have anticipated and patiently awaited. You can trust me to call what I see, not what I want to see or worse, what you may want to see.



Finally, I am able to call the macro in a favorable way for gold stocks. The going will be volatile, but we are in a new macro, one that is finally aligned for the gold stock sector.