Economic Deceleration Continues, Gold Stocks Await

Private Payrolls are the latest weak number (+150k) amid slow economic deceleration

We anticipated Goldilocks back in Q4, 2022 – Q1, 2023 but she has been more intense and longer lasting than I originally expected. Ah, markets. Right? Fast forward to Q4 ’23 – Q1 ’24 when it dawned on me that ‘duh, it’s an election year’ and a mighty divisive and important one at that. We then factored some of the ways that the Biden administration would try to retain power (poor old Joe wilting at the debate most certainly not among them).

What was/is among them is proposed jiggering of interest rates by the GSEs (government sponsored lending entities), Semiconductor CHIPS and other re-shoring initiatives in an increasingly contentious global economic battlefield, EV/Green initiatives, roads, bridges and whatever else they can get their debt soaked hands on. Not to mention government hiring, which we’ve noted every month (except April) of last many has been disproportionately large. Imagine that, a government slipping deeper into sublime levels of debt, hiring more. Sounds about right.

Here again is the $34T+ bag of debt that is being leveraged to support GDP:

St. Louis Fed

Anyway, the point is that the economy has been propped up by various means while embedded Healthcare and Educational services hiring continue and Leisure & Hospitality services continue to boom. I assume much of this is the beneficiaries of inflation having cashed out some of their equity and livin’ it up. We’ll be able to grab the latest reading on the greater Payrolls picture on Friday. But insofar as Payrolls are positive you can bet that Hazel is gainfully participating.

Today’s Private Payrolls report reflects another little tick toward economic contraction. Economic contraction is our favored theme for the gold stock sector. Today’s upcoming rally aside, I am not at all convinced the relatively minor correction (within a larger bull market) is over [edit: okay, with the ETFs and indexes taking out the daily SMA 50 at the open, I may get convinced]. But as the economy decelerates, inflation signals fade and gold outdoes most everything else (which may have to wait until Q4 or Q1, 2025) we will finally have the leverage that most gold bugs believe will never come back to the gold mining sector.

Let’s see how economic and market signals progress over the next few months. In the short-term I believe the gold stock sector is working off the excesses of the first leg of a rally that I think will break the post-2020 consolidation/correction. In the longer-term, a backdrop not unlike the post-bubble early 1930s may grind into place (prior to the next inflation problem). In the short-term I would think a lot will have to do with whether or not, barring a miracle revival by Joe, the Biden administration simply rolls over and expires or the democrat party pulls a white knight out of its hat to replace him and regain momentum.

If the administration simply expires, the concern for the economy would be whether all or some of the debt funded initiatives noted in the second paragraph would expire as well. If Trump looks imminent, I would not put it past the democrats to willingly leave him with a giant and deflating mess on his hands. Trump… a guy who I have as little confidence in as Biden (when he had most of his faculties). Very very different animals, but manifestations of a late stage empire choked with hubris (in my not so humble opinion, of course). Meanwhile, we have not beheld the gold mining Macrocosm in a long time because the inflationary backdrop has been anti-gold mining.

Space is vast and is on no one’s particular time frame. But we are in progress.

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