Email of the day on the gold/gold miners' ratio:
Comment of the Day

July 03 2019

Commentary by Eoin Treacy

Email of the day on the gold/gold miners' ratio:

Thank you very much for your excellent analysis of the precious metals on Friday's video. If possible, can you please also comment on the gold/gdx ratio in one of your future videos and/or comment of the day. As always thanks very much for your excellent service.

Eoin Treacy's view

Thank you for your kind words and I am delighted you enjoyed the Big Picture video. It’s been a big month for gold and gold shares but the relationship between the two deserves a special mention.

I prefer to look at the ratio the other way around and I use the Gold BUGS Index because it has a more back history.

Gold shares massively outperformed in the early part of the last bull market. They had a lot of leverage to the gold price because they had not been able to invest in new supply for years and were running very tight operations. The focus was on survival rather than expansion. As profits rose and confidence improved the majority of gold miners went on a spending spree in an effort to replace depleted reserves. That erased their free cash flow and loaded their balance sheets with debt. Gold miners’ performance relative to gold peaked in 2003 and investors moved on to ETFs and leveraged products.

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