Crack the Case When it Matters Most

Despite a rough couple of weeks for gold bullion it is worth reiterating that the yellow metal has tremendously bullish September seasonality. And with Fed Governor Waller just this morning tilting back to the dovish camp regarding the coming FOMC decision, stocks and bonds are higher as I write this, albeit with semiconductors lagging on the back of AVGO earnings selling off last night. 

Still, I will return to a point previously made here and with Members: When gold decides that The Fed is dovish in a spot where it needs to be hawkish with rising inflation, like various times in the 1970s, gold tends to flourish in this scenario. And if the market determines that Warsh and his gang need to be hiking on September 16th (and beyond), then even standing pat can be construed as dovish and likely punished in the form of much higher gold prices. As they say in the most basic of economics courses, "there ain't no such thing as a free lunch," despite what the powers inside the Beltway would have you believe. 

While the gold ETF has suffered some technical damage in recent weeks, back below its 200-day moving average as we speak, there is nothing wrong with the ETF for senior gold miners, seen on the GDX daily chart, below. 

Note the surge in August, followed by an orderly dip to a rising 20-day moving average, with price comfortably holding above the 200-day moving average, to boot. 

These sorts of bullish divergences are the ones we often look back on months after the fact and punch the air in frustration for not having noticed them at the time. After all, if gold really were in a topping position, one would think the higher beta miners would be getting pounded into oblivion.

Instead, we are seeing the opposite setup.