Gold Mining Fundamentals Likely to Keep Improving in 2023

 | Apr 10, 2023 08:11

Real gold mining macro fundamentals matter. A lot. Here is a list of things that don’t matter, or at least shouldn’t matter when considering a bullish view of the gold stock sector (GDX, ARCA Gold Miners):

  • Cyclical Inflation: Inflation is often touted by gold stock perma-bulls as a reason to buy. When inflation is working to the benefit of the economy it most certainly is not the time to buy. It is the time to be wary of such promos and to mostly avoid gold mining stocks (gold royalty companies have a different set of fundamentals). For example, when mining cost input prices of crude oil/energy are out pacing the mining product gold, well, do the math. It was not surprising in the least how badly gold stocks performed from mid-2020 until Q4, 2022 as the inflation hysteria took hold. Logically, as we began planning for the end of the inflation phase the miners bottomed and turned up in late 2022. It’s so simple as to be confusing for many. Over time, you can spot promotional entities by their habit of creating reasons to be bullish no matter the macro backdrop.
  • War, terror, pestilence and end of the world prophecies: Sure, gold can get a knee-jerk rally at any time that fear overruns its bounds, but that is always corrected and reversed in the absence of real fundamentals. It is the stuff of day traders and fear mongers. I personally don’t think gold should have anything to do with this sordid stuff. All the poor old rock does is hold value over decades and centuries as I pointed out in this recent article.
  • Indian wedding season or the China love trade: Pure promo from some of the more imaginative gold salesmen/women. Sure, there are supply/demand dynamics in play here but a casual review of recent decades proves that Indian and China love do not stand up to the proper macro fundamentals.
  • Central Bank buying: Well sure, if you ignore the fact that for every buyer there is a seller. It’s a net wash and central banks have proven to be no smarter than any other entity.

What matters is our Macrocosm, which I have not presented in a long time but which is proven once again in the current environment to be a good way to view the macro fundamentals not only for gold, but especially for gold stocks, which leverage gold’s standing within the macro. Generally speaking, the larger the planet the more important the fundamental consideration.