reviewing the long-term performance of the gold sector in previous TSI commentaries
we looked at performance in nominal dollar terms and in gold terms, but as
far as we can recall we never looked at performance relative to the broad
stock market. This is an omission we are now going to rectify.
weekly chart shows how the Barrons Gold Mining
Index (BGMI) performed relative to the broad US stock market (as represented
by the S&P500 Index) from 1960 through to this week. Clearly apparent on
this chart is the secular bull market in gold-stock relative strength of the
1960s and 1970s, the secular bear market in gold-stock relative strength of
the 1980s and 1990s, and the secular bull market in gold-stock relative
strength that began in 2000. Also clearly apparent on this chart is that the
secular trends contain many counter-trend moves. During the gold secular bull
market of the 1960s and 1970s these counter-trend moves were sometimes
dramatic and lasted more than two years. During the current secular bull
market the counter-trend moves have been far less impressive, but even though
they look trivial on the long-term chart they can still feel dramatic in real
weekly chart zooms in on the current secular bull market in gold-stock
relative strength, but note that it uses the XAU rather than the BGMI to
represent the gold sector. The switch from the BGMI to the XAU was done for
convenience and doesn't make a significant difference to the pattern.
shows that there have been several intermediate-term corrections in
gold-stock relative strength over the past 12 years, the most notable being
the 18-month correction that began in December of 2003, the 15-month
correction that began in May of 2006, and the steep 7-month correction that
began in March of 2008. The current correction has lasted 7 months to date
and certainly qualifies as the intermediate-term variety.
also shows that the XAU/SPX's weekly RSI hit its lowest levels of the past 12
years in May-2004 and May-2005, and that its current level is close to these
performance of the XAU/SPX ratio over the past several months looks most
similar to its performance during the months leading up to the May-2004
bottom. The May-2004 bottom was followed by a strong multi-month rebound,
although it didn't turn out to be the ultimate correction low.