Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Parabolic, BGMI, HUI and Small Miners with Big Earnings

Commodities / Gold & Silver Stocks Sep 12, 2011 - 08:22 AM GMT

By: John_Townsend

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleI've spent the past couple of weeks learning a new skill - making charts using Microsoft Excel. This article will use my new skills to compare gold's current C-wave development with gold's great parabola that concluded on January 21, 1980, as well as examine the historic relationship of gold with gold mining stocks using both the BGMI (Barron's Gold Mining Index) and HUI (Amex Gold Bugs Index). Then we will conclude with some charts of miners that appear to have not only explosive future earnings, but also explosive future price appreciation.


The upper portion of this chart is the great 1977-1980 gold parabola that blew up on January 21, 1980.

The lower portion of the chart uses the Excel spreadsheet to recreate this parabola (in blue). The red line is the price of gold from the beginning of the current C-wave (April 16, 2009). The green line is essentially a duplication of the conclusion of the great 1980 parabola 'glued' onto the current gold price.

I am showing you this in the context of historical perspective and not in the context of price prediction.

Honestly, I shudder to think what it what take for gold to now double it's current price of $1857 to over $3700 in the next 10 weeks. But I do recognize that it is possible - particularly because, as we observed in 1980, it has happened before.

I can indeed think of several realistic mechanisms to make this happen as 'historically contemplated' on this chart (think Bernanke and QE 3, Europe and sovereign defaults, Comex futures short squeeze of exciting proportion, and other possibilities including war and so on).

The mining indices we are familiar with, such as the HUI (Amex Gold Bugs Index) and XAU (Philadelphia Gold/Silver Sector Index), believe it or not, have not existed for all that long. The HUI dates back to mid-1997 and the XAU only to mid-1995.

Fortunately, there is an index of precious metal mining stocks that predates both the HUI and XAU - and it is the BGMI (Barron's Gold Miners Index). Data and charting of this historical index is available online (BGMI link HERE) and dates back to 1939.

This next chart shows you both the BGMI price action to the present day, as well as a log-scaled chart that suggests the relationship between this index of gold miners to the ever changing price of gold.

The lower portion of the chart suggests that a BGMI/Gold ratio at or below 1:1 has been consistent with the beginning of huge gold miner stock rallies, particularly since 1978. Unfortunately, I did not design both of these charts ('glued' one atop the other) with the identical time frame - which means that 1.0 readings on the lower chart do not line up precisely with the rally origins in the upper chart.

But hey, I warned you I am just learning how to do this stuff.

At any rate, using this metric it appears the gold miners are seriously oversold and likely to rally hard. The current reading is well below 1:1.

If you would like to study the BGMI in greater detail, Mark Lundeen has authored a number of outstanding analyses which include: 1, 2 and 3.

Let's turn now to the HUI index and see if it too is suggesting a bullish future for the miners.

The HUI index consists of 16 miners that are not equally weighted within the index. I have noted these miner's ticker symbols in the upper left corner of the chart.

The immediately striking observation one makes is that gold tends to be priced at 2 times that of this index. (ie. if gold is $1000, the HUI would be close to $500).

Then we notice that at the beginning of gold's secular bull market in 2001, the miners were way out of whack - with gold comparatively selling at a 4-5X premium to the gold bugs index. This led to a miners rally that nearly tripled their value in less than 16 months.

The HUI miners bottomed ahead of gold, reaching a closing price of just $35.99 on November 14, 2000. As of this date September 11, 2011, the HUI index has gained 17 times it's value in November, 2000 ($628.34 vs. $35.99).

By the way, gold bottomed on April 5, 2001, 5 months following the miner's low, with a closing price of $255.45. As of this past week, gold has appreciated over 7 times it's value since making it's secular market low in April 2001 ($1857 vs. $255).

The other thing we notice about this chart is that since 2008 the mining index has not been able to get back to it's more 'balanced' 2X relationship with gold. At present gold is selling for about 3 times the price of the index. Will the HUI index now rally more fervently than gold to close this oversold difference? I don't know.

I can observe that while miners rallied strongly higher during the final 3 months of gold's 1980 parabola (gaining 50+%), they were no match for the rocket launch of the precious metal itself, as gold literally more than doubled in this time period. However, once gold and the miners peaked and then spent 3 months working off a severely overbought status with a sharp 25-35% correction, the miners proceeded to literally double in the following 6 months as gold made a failed attempt to reach the parabolic high.

Finally, let's take a look at the daily/weekly charts of three miners with big earnings.

I am particularly indebted to the outstanding resource produced by Bill Matlack of Scarsdale Equities and published this past Friday at www.Kitco.com

I studied about 200 miner charts to select these three to show you. There are more than three that interest me, of course, but I will need to get to them another time.

This is Claude Resources Inc. (CGR). The earnings data, past and estimated is noted on the weekly chart. The right side of the chart is the daily view of CGR.

Next up is Great Panther Silver (GPL). The earnings data is on the weekly side of the chart as well as the daily side.

And finally my personal favorite which is Minefinders Corp (MFN). The float is small at 84Million shares, gold and silver mines producing in 'safe' Mexico, and the projected earnings are simply breathtaking. Any stock that can go from .09 per share to $1.76 in just three years deserves a good hard look. (!)

And which of these stocks do I own?

Not one. But that may change this week.

Good trading to you.

John Townsend mailto:TSItrader@gmail.com

© 2011 Copyright John Townsend - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules