Listen to the Right Noise

Last November 4th, 2021, with the Nasdaq's QQQ ETF near $400 and GDX at $32 (the ETF for senior gold miners) I wrote this piece noting that the most heinous-sounding pair trade in the world at the time may very well prove to be the smart one. Long GDX and short QQQ was the thinking, as many factors were slowly starting to align in favor of each, be it sentiment, long-term technicals, valuations, looming headwinds, among others.

Fast-forward to this morning, and we have a more pronounced step in the right direction of that pair trade thesis, with QQQ below $352 and GDX over $34. 

While it may be easy to dismiss this move as mere "noise," that type of analysis is rather primitive. In reality, you have to focus n the right type of noise to listen to in markets, a challenge we all continually face without question. And when we do, The Fed's glaring indecision as they remain frozen in the face of sticky high inflation may finally be sniffed out by the gold market as the Nasdaq fails to find strong buyers into any bounce attempt. 

We often think (myself included) of the bond market being the vigilante against The Fed. However, The Fed has indeed been a notably active player in fixed income for years on end by now, likely distorting the entire of the price discovery mechanism. To be clear, I still expect higher rates. However, as I noted yesterday I would not be surprised to see some consolidation here first. 

But with respect to gold (and the oil market too, perhaps), the true vigilantes be reside here and push back on a Fed which thinks it has their sweet merry time to fight this inflation.

In other words, after an eighteen month consolidation, gold and the miners waking up right now would be the sort of noise we all must respect.