Tuesday, April 5, 2011

Gold Bugs and Gold

In a previous post I detailed the very long term relationship between the gold miners and the price of bullion which has not been one of perfect price correlation. During the early stages of gold’s secular advance (2000 through 2003) the gold miners outperformed the price of bullion. In the mid stages of the secular advance (2004 through 2008) the price of bullion outperformed the gold miners. This relationship was displayed on a very long term monthly chart

As we enter the mature stages of gold’s secular advance and there is growing technical evidence via shorter term spreads that the gold miners will once again return to out perform. This is displayed in more detail on a weekly chart where I have placed a relative average spread along with the weekly stock cycle. Note the bullish cyclic commonality of the intermediate cycle troughs in the stocks and the metal.

It appears a bullish stampede into the gold miners is just getting underway which is typical of a late cycle blow off. Enjoy the party but don’t over stay your welcome.


Ed Magee said...

Mr. Carrigan, I'm a long time reader, 1st time poster.

With respect to your previous posts on Gold (Nov. 8. 2010 Gold & the acid test & Nov. 23, 2010 Barrick Breakout?)

Are we not in the same situation today? Gold is making new highs, but with the exception of Goldcorp, the major gold miners are not following to new highs. Is this not another potential bull market trap?

Full disclosure: I've been enjoying the Gold bull market since 2001 and don't want to over stay my welcome at the party.

Thank you.

Gettingtechnical.com said...

Hello Ed

Good observation - the thinning of leadership is typical of an aging bull – this occurs when more money chases fewer stocks which will usually be the larger producers. The best play is to own the large cap dominated XGD – Barrick is the key player and the one the portfolio managers will buy. Watch the US listed Barrick for a move above $55. The TSX listed ABX is distorted because of the currency fiasco

Bill Carrigan