Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

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.


© 2005-2019 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