Gold and Gold Stocks: It Don't Come Easy
Contributed Opinion

Important Disclosures:

1. As of the date of this article, officers, contractors, shareholders, and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Franco-Nevada Corp., Equinox Gold Corp., B2Gold Corp., Royal Gold Inc., and Triple Flag Precious Metals Corp.
2. Gary Tanashian: I, or members of my immediate household or family, own securities of: Wheaton Precious Metals Corp., Royal Gold Inc., Triple Flag Precious Metals Corp., Vox Royalty Corp., Kinross Gold Corp. and Alamos Gold Inc. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: None. I determined which companies would be included in this article based on my research and understanding of the sector.
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During the 2011-2016 bear market, we noted that no amount of clicking the heels of their ruby slippers by gold bugs could supersede the macro and bring them back home to the promised land. More recently, that has very much applied to the bear cycle that began in January of this year.

While there are many sector (e.g., Gold/Oil ratio and other mining cost indicators, local politics, etc.) and macro (e.g., real yields, Fed policy, Gold/SPX ratio, etc.) fundamentals that we track in order to confidently call "bull", or bear, for that matter, I want to once again update one very important psychological indication: the ratio of gold (anti-risk) to the stock market (risk).

When I write "anti-risk" about gold, I do not mean price risk. Of course, gold's assigned value — as reflected in its price — is going to swing wildly as it is counter to risk-on markets. Its value is in its qualities of insurance and monetary value retention over the long term. A counterweight to a portfolio of risk assets.

But insofar as gold stocks leverage gold's standing within the macro (in both directions), gold's assigned nominal and relative values are very important. So let's refer back to the daily Gold/SPX ratio chart and a precarious situation that is not yet broken, but not, not yet proving any kind of forward bull indication.

As Gold/SPX makes another hard test of our original downside target (ref. the green arrow at left), the situation is not resolved. The trend by the moving averages has shifted to down, and there are a couple of disgusting-looking patterns in play. One encompasses the entirety of this chart, and the other spans from July to today. Of minor positive note, there is a positive divergence in the momentum indicators, RSI and MACD.

Put simply, to paraphrase Sgt. Barnes (Platoon), if the ratio breaks down, WE break down. "We" being the greater gold bug "community", as it calls itself. No ifs, ands, or buts. A breakdown here would shelve any near-term expectations for success in the 'price' aspects of gold and the stocks that leverage it.

On the face of it, the macro would be very unfavorable for the precious metals complex should that occur. Now, of course, there could be a classic dump and reversal (AKA whipsaw) to end the correction. But we are not there yet and certainly not dealing in "could be's" at this time.

I hope this provides a little perspective in readers' management of the gold sector. The Gold/SPX ratio needs to hold right here, or the complex will resume its 2026 bear cycle. Each week in NFTRH, we will be tracking this and several other indications for the precious metals and many other sectors/markets, as usual.

My personal watch list, in the event that the above is just a hard test prior to a resumed bull phase, includes quality and/or ‘value' miners and royalties only: Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Equinox Gold Corp. (EQX:TSX; EQX:NYSEAMERICAN), Coeur Mining Inc. (CDE:TSX; CDE:NYSE), B2Gold Corp. (BTO:TSX; BTG:NYSEAMERICAN; B2G:NSX), and Aya Gold and Silver Inc. (AYA:TSX; MYAGF:NASDAQ).

As of this writing, I hold royalties in Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE),Royal Gold Inc. (RGLD:NASDAQ), Triple Flag Precious Metals Corp. (TFPM:TSX; TFPM:NYSE), and Vox Royalty Corp. (VOXR:TSX; VOXR:NASDAQ), along with miners Kinross Gold Corp. (K:TSX; KGC:NYSE) and Alamos Gold Inc. (AGI:TSX; AGI:NYSE).

For those holds to remain in place, the sector macro will need to bottom and turn. Exploration stocks, which I do have interest in, are a whole different animal and beyond the scope of this article.

Bottom Line

The gold stock play is not broken. But limits are being tested heavily by one of their most important macro indicators.

Gold is never broken, even when its assigned value is in the tank.