Gold Stock “Buy” Signal Pops Up

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The gold-XAU ratio currently stands at 4.7 times. The ratio at this level has typically signalled a 20 to 25% upside in gold stocks for those with a one-year holding period...

Gold stocks have performed atrociously for a year or more, with the majority of names way below 12-month highs...Dollar gold bullion itself is hovering around 11-month highs, close to $700 an ounce, but what does that say about the value of stocks?

Myles Zyblock, RBC Capital Markets chief North American institutional strategist, has long argued that among numerous gold stock value indicators monitored, the one with the best track record is one of the simplest. This, of course, is the ratio of the dollar gold spot price to the Philadelphia gold & silver index, known as the XAU.

For the first time in years, it was on March 13, 2007,that the gold-to-XAU ratio crossed above the 5.0 times threshold. At or above this level, of 32 observations in the past 24 years, only one has returned a negative for holding of gold stocks. For the balance of 31 observations, the average return for holding gold stocks for one year is 40%.

The gold-XAU ratio currently stands at 4.7 times. The ratio at this level has typically signalled a 20 to 25% upside in gold stocks for those with a one-year holding period...

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