Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The Amazing Story of Gold to Gold Stocks Ratios

Commodities / Gold and Silver Stocks 2018 Dec 11, 2018 - 04:07 PM GMT

By: Rambus_Chartology

Commodities

Tonight I would like to show you some charts from the PM complex we haven’t looked at in a long time. Some of these charts will look familiar to some of our long term members as they were very helpful in the past to help us figure out what the PM complex was up to. This first chart is a ratio combo chart which has the GOLD:XAU on top and the XAU on the bottom. When the ratio is rising gold is outperforming the XAU. During the bull market years starting around 1999 or so the ratio would trade between roughly 5.10 on top, blue horizontal line, and 3.70 on the bottom, red hormonal line. When the ratio rallied up to the blue line around the 5.10 area it was a good time to back up the truck and buy your favorite PM stocks and when the ratio got down to the red line around the 3.70 it was a good time to sell your PM stocks.


That worked out very well until the crash in 2008 which changed everything in regards to the ratio chart. As you can see the ratio broke out above the blue horizontal trendline and rallied all the way up to 8.90 which was the highest this ratio had been in history. There was no way to know back then that this was the start of the massive underperformance of the XAU to gold or PM stock in general to gold. The ratio sold off down to the 6.00 area that reversed its role to what had been resistance at the all time high for the ratio, to now support from above in September of 2009. The ratio chart on top finally topped out in its 20 year six point parabolic arc in January of 2016 which began the baby bull market, yellow shaded area at the top of the chart. When that small double top broke down is when we took our first PM stock positions which at the time was a good buy signal. The price action sliced right through the parabolic arc like a hot knife through butter and things were once again good for the bull market in the precious metals stocks.

The brown shaded S&R zone was the first place we began to look for initial support, but the ratio broke down a little further and finally found support at the previous low at 12.50. Looking at that massive decline off of the double top high at 24.33 you can see why the 2016 rally was so strong, as shown on the bottom chart for the XAU. We got a nice bounce off the 12.50 area which looked like we could see the ratio start building out a H&S top but that wasn’t going to happen. As the ratio kept drifting higher and higher the XAU drifted lower and lower which brings us up to our current situation. Currently the price action on the ratio chart on top is testing the top rail of a rising blue flag, while the XAU on the bottom chart is testing the bottom rail of its possible bullish falling wedge. To really get this rally going in the precious metal stocks we need to see the ratio chart on top break to the downside in no uncertain terms. If the ratio chart ever trades back into its old trading range between 3.70 at the bottom and 5.10 at the top the PM stocks should be massively higher than where they are trading today. The very first thing we need to see happen is for the blue falling wedge on the XAU to breakout and move higher in an impulse type of move. The setup is there now we just need to see some follow through to the upside on the XAU.

This next chart is a weekly ratio combo chart for the GOLD:XAU ratio on top and the XAU on the bottom. This chart shows the last seven years of the ratio combo chart above. Here you can see how the possible H&S top is building out on the ratio chart which in turn will show a possible H&S bottom on the XAU. After we got the initial bounce in the ratio chart in July of 2016, and the high on the XAU, I was looking for a possible right shoulder to build out that would show some symmetry to the left shoulder in both the ratio and the XAU charts. That began to fall apart at the beginning of this year as both have been trading inside of their 2016 trading ranges. Again, for the bullish case, it’s possible that we could be seeing the price action testing the top rail of the potential bearish rising wedge on the ratio chart with the potential test of the bottom rail of the bullish falling wedge on the XAU chart.

Below is another long term ratio combo chart we haven’t looked at in ages which has the HUI:GOLD ratio on top and the HUI on the bottom. This chart really sums up how badly the HUI has done vs GOLD. When the bull market began for the HUI back in November of 2000, the HUI kicked gold’s butt on the initial thrust and for the next three years until December of 2003. Believe it or not that was the last time the HUI has outperformed gold in a meaningful way right up to the present. Note the price of gold when the ratio topped out in December of 2003 which was just $400. Note where the ratio was trading back in September of 2011 when gold topped out at 1920.

When the ratio broke down from that 7 point diamond reversal pattern, it had to be a reversal pattern because it formed above the previous low, another impulse move to the downside began once again. How could this be happening? The ratio finally found support in 2012 and built out the small red rising flag. At the time I labeled the red rising flag as a reverse symmetry pattern which is related to the small Red Bull flag which was the very first consolidation pattern in the new bull market back in 2000. I remember just like yesterday we kept waiting for the price objective of the small red bear flag to be hit at .13 which was the all time low up until that point. As you can see we got a couple of small bounces off .13 but the ratio had to shakeout the last holders of the HUI stocks and traded below the .13 S&R line. We now have a potential bullish falling wedge on the ratio chart which is the best setup in many years. Hopefully if this is the true bottom we’ll see something like what happened at the beginning of the 2000 bull market where the HUI kicked gold’s butt for three full years.

The bottom line is that the ratio is now lower today with the price of gold at $1250 than it was at the beginning of the HUI’s bull market in Year 2000 when the price was almost exactly $1000 lower . Pretty amazing when you think about it.

All the best

By Rambus Chartology

https://rambus1.com

FREE TRIAL - http://rambus1.com/?page_id=10

© 2018 Copyright Rambus- 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.

Rambus Chartology Archive

© 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