Gold Miners Should Be Back on Your Radar

Source:

“I always keep a close eye on the relative strength of the miners versus the metal. . .”

Ever since I started my investment career as a mining analyst in 1984, I have taken a keen interest in gold stocks. In particular, I always keep a close eye on the relative strength of the miners versus the metal as stocks often lead bullion.

The chart below has been constructed by dividing the MarketVectors Gold Miners ETF (GDX) by the streetTRACKS Gold Trust (GLD). A rising trendline indicates outperformance by gold stocks against bullion, whereas a declining line shows the metal having the upper hand. After a period of underperformance from March to October 2008, the miners outperformed bullion until the beginning of the year but have since been marking time in similar fashion to the metal.

GDX:GDL
Source: StockCharts.com

Although the above chart does not yet indicate gold miners pointing the way to a new surge in bullion, the Gold Miners Bullish Percent Index shows more than 60% of the 32 stocks in the Gold Miners Index are now in point and figure uptrends.

John Murphy (Stockcharts.com) explains:

The sentiment indicator is used like all bullish percent indices. Readings over 70 are overbought while drops below 30 are oversold. The last two times that oversold condition existed were the end of 2008 and during the first quarter of 2010. The late 2008 upturn signaled a major rally in gold shares. The latest upturn this year appears to be signaling an upturn in gold and silver shares as well. While the BPGDM is no longer oversold, it’s generally a positive sign for a group when more than half of its stocks are in new uptrends.

$BPGDM
Source: StockCharts.com

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