A short note today, focused on technical measures and the mining sector.

First off gold.

I’ve been quietly buying more gold mining equity stocks. Not a lot but a steady amount. I can’t help but think that we quite possibly have more monetary volatility ahead. Although I accept that rising interest rates are frequently bad news for gold prices, I think this time concern around the next stage of monetary innovation will underpin a positive attitude towards gold.

But it’s not like gold is doing that badly at the moment.  John Reade, Chief Market Strategist at the World Gold Council cites the chart below as evidence. The green lines represent the 200-day moving average, the red line the 20 day moving average.

Reade notes that gold has moved higher at the start of this week and is above its 200-day moving average for the first time since early February.

“Buyers have returned to physically-backed Exchange Traded Funds – a key barometer of investor sentiment – and Net Managed money positions held on the Comex futures market jumped by 92t in the week to last Tuesday, the largest one-week gain seen since April 2020. We believe investors started to cut gold holdings in November last year following signs that vaccines would soon start to end the COVID-19 pandemic. This profit taking, as investors moved to increase riskier assets, weighed upon gold but this may have run its course….With breakeven inflation expectations near the highs of this century while real Treasury yields sink to further negative territory gold is gaining traction from investors looking again to hedge against ‘interesting times.”

Back in the core basic materials and mining space, most investors have been a bit more cautious, thinking that the recent bull market had runs its course. Not so according to multi asset fund manager – and technical analyst – Charles Ekins at Ekins Guinness. He says that despite strong outperformance, “relative Value Yield for Basic Materials at +0.8% is still attractive in absolute terms and relative to its history. The 10 week Relative Strength Indicator is high at 65 but is not at extreme levels, so no obvious need to reduce the Overweight.”

Last but by no means least, equity bulls have been a bit too blasé about Covid, imagining its vanquished. It isn’t.

Barclay’s analysts warn today that although “fast data remain consistent with the recovery proceeding as we had expected, the Indian variant poses risks. There are still uncertainties around this strain, and developments will be key to watch.” That Indian variant is the one to watch: “This development contributes to a credible balancing of risks somewhat to the downside, not least given the possible implications for confidence. Of note, last week’s lackluster Q1 GDP breakdown already posed questions over the underlying health of the economy”.