Gold Stocks Starting To Outperform Gold

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Gold mining stocks are doing better than the commodity itself. Since the start of 2014, the Market Vectors Gold Miners ETF (GDX) has gained 27% versus a 9% gain in bullion. That stronger miner’s action is reflected in the rising GDX/gold ratio shown in the first chart. The ratio has exceeded its spring high to reach the highest level in ten months. That tells us two things. First, that miners are a stronger bet than the commodity. Second, it’s a good sign for bullion itself. That’s because gold usually does better when miners are leading it higher. Within the precious metals group, silver stocks are doing even better than gold miners. That can be seen in the second chart which plots a ratio of the Global X Silver Miners ETF (SIL) divided by the Market Vectors Gold MIners ETF (GDX). They’re about even since January. Since the start of June, however, the SIL has gained 26% versus a 20% GDX gain. The reason for the stronger performance of the silver miners is the fact that silver has outgained gold by an 11% to 5% margin. That suggests that silver miners may be a stronger bet than gold miners.

GDX_vs_Gold_Price_2013_July_2014

SIL_vs_GDX_2013_July_2014

 

The next chart shows Silver Wheaton (SLW) moving above a “neckline” drawn over its 2013/2014 highs, and very close to exceeding its March 2014 high. Its relative strength line (top of chart) is also starting to rise. SLW is the largest holding in the Silver Mining Index (SIL)and the fourth biggest holding in the Gold Miners ETF (GDX). Silver may be getting its strength from the fact that it’s both an “industrial” as well as a “precious” metal. As a result, it may be getting a boost from recent stronger industrial metals like aluminum, copper, and zinc. At a time of growing global tensions, it’s a good idea to have some precious metals exposure. At the moment, mining stocks (and silver stocks in particular) may be the best way to do that.

Silver_Wheaton_2013_July_2014

 

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