Email of the day
Comment of the Day

April 16 2013

Commentary by Eoin Treacy

Email of the day

on gold mines as a lead indicator
“Can you pls look at the half dozen or so correction ends in gold since 2000? I believe that on each occasion gold shares bottomed just before gold physical

“Can you pls check this out as the granularity required for an historic analysis of an overlay HUI versus bullion chart is not possible on your system. Thank you"

Eoin Treacy's view Thank you for this question which others may have an interest in. Here is a ratio of The NYSE Arca Gold Bugs Index / Gold and compared to the price of the gold (the lower chart). Since gold miners are generally considered to offer leverage to gold prices they can be expected to be somewhat more sensitive to movements in the price of the underlying commodity. As a result they often lead.

What is particularly noteworthy is that gold shares performed spectacularly well relative to gold in the early part of the bull market when ETFs were much less popular. However, as ETFs became more popular and gold miners struggled to contain costs, the allure of the sector deteriorated.

Considering the ratio, the fact that gold shares have not been this low relative to bullion since 2001 is noteworthy. In absolute terms, gold miners have fallen even faster than gold. There is no confirmation yet that they have reached a floor but the sector is deeply oversold.

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