Chart of gold vs gold stocks

cohodk

So in my constant search to find relative values I like to use comparison or ratio charts. The chart above is the price of gold in terms of the gold mining stock index (XAU). I like the XAU vs other indices as it has a much longer trading history. Anyway, you can clearly see the dramatic outperformance of gold vs the mining stocks since 1995. The relative performance has traced out a very nice trend and this ratio is currently bumping up against that line. Now the line is upward trending and of course gold is never "worthless" while stocks can become "worthless" so in theory this trend could continue, however, there are many opportunities to trade one asset class against another and I see one here. Mining stocks should outperform gold over the near to intermediate term, (now to 3 years).

This does not mean that mining shares are going higher, im just saying they should outperform. Examples may be that gold goes up but the miners go up more, or gold goes down and mining shares remain unchanged, or that gold is unchanged and miners are higher. I can see this ratio going to about 11. With gold currently at 1260 and the XAU at 91, I will let you make your own predictions. Trade wisely.

cohodk

TTT for MJ

HonoluluDude

The juniors have been kicking butt since the beginning of this month.

chart

cohodk

Upon further review, I believe XAU is headed to about 140. To attain my target ratio of about 11, implies gold goes to about $1550. A gold/silver ratio of 60-65 puts silver at $24-26. Timeframe is 6-18 months.

roadrunner

<< <i>Upon further review, I believe XAU is headed to about 140. To attain my target ratio of about 11, implies gold goes to about $1550. A gold/silver ratio of 60-65 puts silver at $24-26. Timeframe is 6-18 months. >>



Thanks for your input Cohodk. Surprise June rally shocked a lot of bears and bulls. Now coming up to the 1-3 weeks where gold usually makes a final summer bottom (or higher low). Turn dates popping up over the next
1-3 weeks as well. July 22nd marks the 144th day (Fib) since the December GDX rally began. There were key turns at every Fib up to 55 (to within 1 day). The 89 day Fib was a couple days off and wasn't a major high or low.
GDX also exceeded closing prices from 218-222 days ago over the past few weeks. We hadn't seen that in several years. It's one of the pieces needed to restart a bull market.

Baley

<< <i>Upon further review, I believe XAU is headed to about 140. To attain my target ratio of about 11, implies gold goes to about $1550. A gold/silver ratio of 60-65 puts silver at $24-26. Timeframe is 6-18 months. >>



Well it's been 8 months. Time for a checkup?

roadrunner

Miners did manage to outperform gold into Labor day....and then were destroyed into November and December. XAU managed to get back to 105 in July, then crashed to 61 in Dec by following the rest of the commodity sector and non-USD currencies lower. Can't fight the FED. Is this chart now suggesting the death of the gold mining industry? It only adds 1.5-2.0% to world inventory each year. If not for crushed energy, labor, and supply prices I might easily agree. But miners still have to fight the toughest political, environmental, and social issues that they ever have. It doesn't help that there are fewer and fewer worthwhile large projects than ever. Miners are now searching up 3 miles deep and 2-1/2 miles high for gold. It can't be easy.

2014 chart XAU/Gold. Gold/XAU ratio peaked around 19.5 this year....taking out that 25 year resistance line.

The 10yr/2yr treasury yield ratio has tracked pretty well with the YEN, AUD, Gold to silver ratio etc. Until this 10yr/2yr finally forms a strong bottom to this 3-4 year ABC correction, not much is going to change. A chart of this from 2000-2014 is most instructive showing a parabolic rise that couldn't be sustained. I can only link the past 3 years.

10 year to 2 year yield ratio

jmski52

The OP's chart seems to correlate directly with the bailouts and QE money injections into the economy. The moving average was pretty flat for years until the financial crisis and the resulting bailouts and QE.

If there is ongoing price suppression of the gold price, this would cause the ratio to increase, with gold stocks taking a bigger hit than the gold price, due to their higher betas.

Gold's initial reaction to the bailouts and QE was to rise. As stocks started to react to all the free money, gold suddenly did an about-face. I would've expected gold to have benefited from QE as much as anything else. That's just my opinion, and I still see no reason to think otherwise.

If QE has truly ended now, we might initially see this chart go parabolic especially if stocks take a hit and gold is once again seen as a safe haven. However, it could turn right back around if the perception becomes favorable to the gold miners once gold is rallying big.

This chart bothers me as any kind of a market predictor. It's going to whipsaw for different reasons.

metalmeister

JNUG up 100%++ since the split
NUGT in up 50% + YTD
Still holding NUGT since my re-entry in the single digits at the EOY.... :-D

roadrunner

<< <i>JNUG up 100%++ since the split
NUGT in up 50% + YTD
Still holding NUGT since my re-entry in the single digits at the EOY.... :-D >>



Miners started out 2014 as gang busters too. It didn't last long. Let's see if they can do better in 2015. They were due for a decent rally off the Nov and Dec 2014 lows. This 3 month GDX "W" pattern has some good upside potential. Each time they've split the miners in the past 1-2 years it was followed by a considerable hit. No doubt the bears were expecting much of the same when they just did a 10-1 inverse split on JNUG.

metalmeister

This is a short term trade... Still up another 15% today... holding my breath!

guitarwes

I should've bought more JNUG in the $1.90's before the split.......poop.

cohodk

Not my chartwork, but it is timely and fits into the discussion. I will update my charts and analysis tonight (I hope).



http://stockcharts.com/articles/canada/2015/01/gold-finally-moves-above-the-trend-line.html

MGLICKER

metalmeister

NUGT up 70% YTD still holding