http://themacrotourist.com/images/DontWorryFeb0516.png

This morning the Gold Miners ETF (GDX) gapped lower. It wasn’t that surprising since it is up more than 30% over the past two weeks. Some back and filling seemed inevitable.

http://themacrotourist.com/images/GDXGPOFeb0516.png

Yet instead of continuing to sell off with the rest of the stock market, the gold miners were quickly aggressively bid. As I write this they are actually pushing to new highs for the move.

http://themacrotourist.com/images/GDXGIPFeb0516.png

Even though the gold miners are ripping higher, there is precious little chatter about it. There are no traders celebrating big wins on my twitter feed. It’s almost as if gold doesn’t exist.

This is exactly the sort of action that precedes big bull moves. Strong price performance with little participation.

I am a huge gold bull down here, but even I didn’t expect the violence of this move higher. I had peeled off some exposure into yesterday’s strength, but I am beginning to wonder if the mistake will be selling too early.

Even though gold has had a big run higher, in the grand scheme of things, it is a tiny blip. Have a look at a chart of the gold / S&P 500 ratio.

http://themacrotourist.com/images/GOLDSPXFeb0516.png

Stocks have been increasing incessantly at the expense of gold for the past four years. I believe Central Bank monetization of their balance sheets with equities and other risk assets is one of the main reasons for this outperformance.

This experiment will end badly, and when it goes completely off the rails, Central Banks will return to buying the one asset that has endured thousands of years as an independent store of value. Central Banks sold the lows in gold during the late 1990’s, they will buy the top in the years to come.

Thanks for reading and have a great week-end,
Kevin Muir
the MacroTourist