Gold Miners: Rooted To The Ground

1. Gold Miners: Rooted To
The Ground

2. Points To Be Discussed Today:
• Gold Miners: Rooted To The Ground
• Gold-Continuous Contract
• Gold Miners ETF
• Outlook Remains Bearish
• USD Index
• Will Gold Shine Under Bidenomics?

3. Gold Miners: Rooted To The Ground
• Gold finally managed to rally temporarily. However, the gold
miners barely moved or even declined. With the market so
weak, what will come next?
• In my previous analyses, I wrote about the possibility of seeing
another move higher in gold, and that it wouldn’t last long – if
we saw it at all.
• I also wrote that mining stocks would likely disappoint, just as
they did in 2012. And what happened yesterday was in tune
with the above.
• Namely, gold did move higher, but only on a very temporary
basis.

4. Gold-Continuous Contract

5. Gold-Continuous Contract - I
• In fact, the rally ended even before the closing bell, as gold futures
reversed their course and ended the session only $10.90 higher
(after being even ~$20 higher intraday).
• This price action created a bearish reversal candlestick called the
shooting star. Such candlesticks tend to be important if they form on
relatively big volume.
• And indeed, yesterday’s volume was relatively big, which means
that the implications are bearish.
• Well, they were bearish even before yesterday’s session, but seeing
confirmations adds credibility to the bearish narrative.
• Another detail that serves as a bearish confirmation is the
performance of the mining stocks.

6. Gold Miners ETF

7. Senior Gold Stocks
• The senior gold stocks were barely up yesterday. Unlike gold,
they didn’t move above their recent intraday highs (which is
exactly what happened in 2012 at the end of the corrective
upswing).
• By the way, back then, gold corrected to its 61.8% Fibonacci
retracement, and this time it moved slightly above the 38.2%
retracement (intraday) before declining.

8. Sharp Short Term Rally

9. Market Is Weaker
•This time the market is weaker, but the
similarity between both periods remains
intact.
•Getting back to the mining stocks,
while senior miners moved slightly higher,
junior miners declined. This is most clearly
visible on the 4-hour chart.

10. Gold Miners ETF - I

11. Outlook Remains Bearish
• After an intraday attempt to rally back above its
recent low, the GDXJ turned south once again
and ended the session lower.
• I’ve already written why the junior mining
stocks’ bearish potential is bigger than the one of
the senior miners, and yesterday’s session
provides yet another confirmation.
• Hence, the outlook remains bearish.

12. USD Index

13. Correlation (USD & Gold)

14. USD Index Will Break Higher
• On one hand, we have a situation in which the USDX is just below the medium-
term resistance line, so it suggests some difficulty in moving higher from here.
• On the other hand, we see that the USDX already corrected yesterday and rallied
back up immediately. This could be a sign that it’s ready to break above the neck
level of the pattern.
• This would be a major development as the target based on the head and
shoulders pattern is equal to the size of the head (I marked it with green, dashed
lines). The breakout here would, therefore, imply a move to about 98 –
approximately the late June 2020 highs.
• Naturally, the above would be very bearish for gold and the rest of the precious
metals sector.
• It seems quite likely that the USD Index will break higher, if not soon, then shortly.
And when that happens, gold will likely slide to its previous 2021 lows. That’s
when we might see a short-term rebound before a huge price plunge to $1,500 or
lower.

15. Will Gold Shine Under Bidenomics?
• Bidenomics is a big departure from sound economics. But when reason sleeps, gold
fortunes are born.
• Biden’s triumph in the presidential election does not just mean that a new man lives in the
White House.
• It actually implies a fundamental shift in economic policy . Some analysts even see Biden’s
agenda as a decisive break with neoliberalism or “Washington consensus”.
• You see, in the old orthodoxy, most economists trusted in markets, argued for privatization,
deregulation, and liberalization.
• Taxes and social benefits should be low and don’t discourage work and investments.
• The governments should run balanced budgets, avoiding large and permanent fiscal
deficits , while central banks should hike interest rates to prevent inflation from running out
of control.

16. Scarcity & Limited Supply
• The focus was on scarcity and limited supply. The economy was believed to operate generally at potential,
so the key factors to fast economic growth were structural reforms and adequate supply-side policy to
strengthen incentives to work and invest.
• Governments shouldn’t run fiscal deficits as they could crowd out private investments, and they shouldn’t
stimulate the demand as it would misallocate resources and could overheat the economy, leading to inflation.
The monetary policy was better suited to occasionally fight economic crises .
• How much has changed! Now, the focus is on slack and the demand side of the economy.
• The growth is held by chronic lack of demand – this is the key tenet of Keynesian economics, the hypothesis
of secular stagnation, and the Modern Monetary Theory – so, governments and central banks should
continuously stimulate the economy through easy monetary and fiscal policies .
• As real interest rates are low and demand is weak, rising public debt is not a problem. Inflation is not a
problem either; after all, if there is always slack in the economy which operates below its full potential, there is
practically no risk of inflation.

17. US Fiscal Surplus Or Deficit

18. Fed’s New Monetary Framework
• Another notable example is, of course, the Fed’s new monetary framework. The US central bank has
ultimately disregarded the idea of the Philips curve and the natural rate of unemployment .
• There is no level of employment that could boost the inflation rate, so there is no need for any preventive
actions. What really counts is the actual inflation rate, not the expected one.
• The central bank shouldn’t fight with symmetrical deviations from the economy’s long-term path determined
by technological progress and other supply-side factors any longer, but only with shortfalls from the full
employment.
• So, what does Bidenomics (and Powellomics) imply for the gold market? Well, Biden is not the first politician
who thinks that there are no economic limits to his ideas.
• But the pandemic and the economic crisis, the environment of ultra-low interest rates, and the fact that the
Democratic base has shifted further to the left implies that Bidenomics may become a radical departure from
sound economics.
• However, a crazy idea that “borrow & spend without a limit” is the key to prosperity is positive for the gold
market , as the yellow metal is a safe-haven asset and a hedge against insane economic policies.

19. Fed’s New Monetary Framework - I
• What is important here is the fact that we have actually tested this approach. In 1960, just like today, the
Keynesian economists who dominated in the mainstream (and politicians who trusted them) thought that the
main task of economic policy is to actively and permanently stimulate aggregate demand.
• The result was stagflation in the 1970s, as it turned out that economies may overheat as well. Gold shined
then, so it should also benefit today from similarly unsound economic ideas and policies.
• So far, the pace of economic recovery has been fast, while the inflation rate has remained limited. But this
may change quickly when people stop trusting that the Fed and the government will swiftly take action to
contain inflation if it breaks out.
• However, given the current mindset and macroeconomic ideas, how probable is it that the policymakers will
accept substantial interest rate hikes, cuts in spending, and probably also a recession when faced with
1970s-style inflation?
• Not very likely, indeed. Hence, if inflation continues to rise, while the Fed remains ultra- dovish , inflationary
expectations may become unanchored, and inflation may get out of control taking gold with it on a wild
journey north.

20. Gold Miners: Rooted To
The Ground

21. Thanks For Listening
Gold Miners: Rooted To The Ground