Last month a plethora of gold stock indicators reached
extraordinary levels. Let's take a look at five of them.
The Gold Miners Bullish Percent Index
Stockcharts.com has data of the Gold Miners Bullish Percent Index.
Its data for this indicator starts on February 14, 2008. The
all-time low of the Gold Miners Bullish Percent Index is 0. It
closed at that level on December 3-5, 2008 and April 12-19, 2013.
From December 3-5, 2008 gold stocks went up 119% to 126% in less
than a year.
Gold Stocks Underperform Oil Stocks By Over 50% in 131
The data for
(INDEXNASDAQ:XAU) starts on December 19, 1983. The data for oil
stocks (INDEXNYSEGIS:XOI) starts on August 26, 1983. On April 17,
2013, gold stocks underperformed oil stocks by 50.48% over the
previous 131 trading days. The lowest 10 readings for the $XAU:
$XOI ROC (131) since December 19, 1983 occurred on April 12-25.
No. 11 was December 4, 1997. Gold stocks went up 44% over the next
140 calendar days.
No. 12 was June 14, 2004. Gold stocks went up 38% over the next 156
$XAU Close in Relation to Trading Range (59 Trading Day
This indicator may require a bit of explaining. Let's say that
during the course of a day, a stock trades in a trading range of
$10 to $11. For this indicator, a close at $10 would equate to 0%
and a close at $11 would equate to 100%. On April 17, the $XAU
closed at an average of 35.49% of its trading range percentile over
the previous 59 trading days. So in our example, the average close
would have been $10.35. While that doesn't seem like a big deal,
since 1983, there has been only one time period when gold stocks
had such a confluence of subpar closes for such an extended period
What happened next? Gold stocks bottomed at 96.66 on January 31,
1995 and peaked at 155.6 on February 7, 1996. While the indicator
extreme did not mark the exact low, it was very close and it gave
an alert to an upcoming 60% rally. It is interesting to note that
over 18 years later, gold stocks are near not only the same
indicator level but the same price level as well:
4/17/2013 35.49% 98.85
Note that the maximum price of gold during all of those
aforementioned dates was $383.
Barron's Gold Mining Index to Gold
Instead of using the $XAU gold stock index, we are using the
Barron's Gold Mining Index (thanks to chartsrus.com). The Barron's
data is weekly and goes back to December 23, 1938 whereas the $XAU
data is daily and goes back to December 1983. So there are
tradeoffs with each approach. With this indicator, the Barron's
data is most appropriate. The following list contains the 12 lowest
ratios in history.
Gold stocks are the cheapest relative to gold in over 70 years.
From April 24, 1942 to March 8, 1968, this indicator was in a
secular uptrend. Since 1968, it has been in a secular decline. Are
we now at the bottom of the mother of all trading ranges and due
for a reversion to the mean? Or is the 1942 all-time ratio low a
mere pit stop in a secular shift in the relationship between gold
and gold stocks? While only time will answer this question, this
indicator can probably be placed in the bullish side of the ledger
for gold stocks until proven otherwise.
Barron's Gold Mining Index: Stocks ROC (26 weeks)
The following are the returns of gold stocks (not the ratio return)
when they underperformed the
(INDEXSP:.INX) by 43.3% in 26 weeks.
In summary, past history suggests that one should give strong
consideration to purchasing precious metal stocks.