Gold miners comprising GDX and GDXJ are hurting because as demand falls, so does their profits. While many miners sell future production causing a delay between falling gold prices and stock prices, it eventually catches up. If recent falling gold prices actually signaled a buying retracement instead of a complete shift, I would expect gold bullion sales to increase as price recedes. Instead, prices are dropping right along with demand, a striking bearish indicator.
Buoyed by Hope
Many investors have failed to see that lower highs and lower lows equal a shift from a rising market to a falling market. However, confirmation bias explains perfectly what gold bulls are thinking.
Confirmation bias is a mental process of assigning greater weight to confirming information regardless of how ridiculous and baseless it is, while at the same time assigning lower weight to any information that contradicts an already established opinion.
When I read silly things like a Greek default and monetary easing in Europe will lead to higher gold prices I have to wonder if they believe it, or if pundits are talking their book. Either way don't bet on it.
I predicted that a Greek default
last year, after the "problem was solved," and that it will involve large loss write-offs for Europe as a whole and French banks in particular.
Europe has borrowed and spent like a mad hatter holding an American Express Black Card. The spending limits were set too high, and the bill has arrived, leaving politicians wondering what to do now. Sadly, it didn't take many countries long to mortgage away their kid's future.
Don't expect inflation fears in the eurozone anytime soon. Declines in currency exchange value will more than offset continental inflation. The net gold impact is bearish absent a strengthening of the euro against the dollar. With upcoming markdowns in loans, I would expect the Titanic to finish its voyage before European monetary changes create a bullish case for gold.