Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks Continue to Underperform Gold Bullion

Commodities / Gold and Silver 2012 Apr 23, 2012 - 03:09 AM GMT

By: Willem_Weytjens

Commodities

Best Financial Markets Analysis ArticleI have written (and warned my readers) several times about the weak performance of the HUI index compared to the price of Gold.
Despite general stock markets approaching pre-crisis highs and Gold holding up quite well so far, the HUI index has dropped quite substantially. The combination of weak performance of HUI stocks and the relatively “strong” action of Gold, caused the HUI index to underperform Gold dramatically.



Chart courtesy stockcharts.com

I have often compared the underperformance of the HUI index relative to Gold to the situation in 2008, right before the “big crash”.
Here it is once again:


Chart courtesy stockcharts.com

Now let’s suppose the pattern above takes place. How could we get there?
1) a severe market crash, just like in 2008;
2) a big drop in Gold prices, which would most likely lead to an even bigger decline in Gold stocks; OR
3) a HUGE rally in Gold prices.

How could that be? Well, in the late 1970′s, Gold rallied substantially, causing everybody to believe that those high Gold prices (and therefore mining companies’ margins) were not sustainable. They bought Gold bullion while they ignored the mining stocks.

Once it appeared clear that the high Gold prices WERE in fact sustainable, the Gold Stocks rallied. They even rallied to new highs AFTER the Gold price peaked in early 1980!

We might be in a similar situation today. Nobody wants the mining stocks. If Gold would rally to new highs, it could be on its way to $4,000-$5,000. Could it be that most people now think that those Gold Prices ($1,650 per ounce) are not sustainable?
What if Gold suddenly rallies to $4,000? Then suddenly everybody will start to chase stocks of the Gold Miners.

On the other hand, here’s another interesting chart, showing the BGMI-to-Gold (BGMI = Barron’s Gold Mining Index) from 1967 to 1980 (blue line) and the HUI-to-Gold ratio from 1993 until today. If this pattern continues, it could mean that the underperformance of the Gold Stocks is about to end.

However, it could therefore also imply that the top for Gold is set.

I definitely know that the Fundamentals for higher Gold Prices are there (think of all the money printing etc), but have a look at the following chart from James Paulsen, Chief Invest­ment Strate­gist at Wells Cap­i­tal Man­age­ment (Wells Fargo) recently shared:

Gold does look expensive based on these charts, doesn’t it?


For more articles, trading Updates, Nightly Reports and much more, please visit www.profitimes.com and feel free to sign up for our services!

Willem Weytjens

www.profitimes.com

© 2012 Copyright Willem Weytjens - 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.


© 2005-2022 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