When inflation is sticky rather than transitory, the Fed hikes interest rates as they did last week by .25%. The price of gold and the price of gold stocks, however, suggests that inflation may be stickier than imagined and those prices are headed higher. Will the stickiness last for months or for years?
Models closely monitored by MBAs working for big investment firms show that most expect the Fed to “pivot” to lower rates by early 2024, if not earlier. This reflects the expectation that inflation will give way to deflation by then — “just look at the drop in the price of oil recently!” is the word.
So, it’s odd, from that perspective, that gold and gold stocks continue to show strength with some of the equities actually hitting new highs. Whoever is doing all of that buying must expect inflation to remain a problem — which would be at odds with the “pivot” narrative of the Wall Street models.
Gold is saying that, in its opinion, inflation is much stickier than is widely believed. A “good” jobs report such as the one issued on Friday confirms the stickiness potential and lends credence to the underlying basis for this precious metals rally. It’s been underway since a November, 2022 low — take a look at this chart:
The price of gold is trending steadily higher as indicated by the upward movement of the 50-day moving average (the blue line) above the upward movement of the 200-day moving average (the red line). The divergence from price of the relative strength indicator (RSI, below the price chart) suggests that the rally may be ready to pause.
Now examine the daily price chart of, for example, Harmony Gold Mining:
That’s a higher closing price on Friday as the jobs report showed U. S. economic growth. The South African gold miner trades at a 90% discount to its book value, has no long-term debt and pays a dividend of .77%. The most recent 12-months earnings are -120% and for the past 5 years, it’s -33%.
Here’s another one — the daily chart for Osisko Gold Royalties:
The low for this NYSE-traded Canadian-based gold royalties stock came in September, 2022 and the 50-day moving average crossed above the 200-day moving average in mid-December, 2022. Note that the price continues to trade well above the 2 significant moving averages, both of which are trending upward. The divergence from price of the relative strength indicator suggests that the rally may be tiring.
Here’s the daily chart for another of the gold royalties equities:
The new high came on Thursday and then sellers showed up Friday. The NASDAQ
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