HUI/Gold Ratio, National Inflation Association
When the HGR is rising, gold stocks are outperforming gold.
Conversely when the HGR is falling, gold is outperforming gold stocks.
Since 1996, the HUI/Gold ratio has averaged 0.363. The all time low
HUI/Gold ratio was set on November 17, 2000 when it bottomed at 0.135.
The HGR closed Wednesday November 20th at .148.
Gold mining stocks would seem to be extremely undervalued compared to
the price of gold. Let’s investigate further and look at a couple of charts
(the following four charts are from marketwatch.com)…
NYSE Gold Bug index (HUI)
PHLX
Gold/Silver Index
The two above index’s are excellent proxies for what’s going on in
the gold sector. But you can’t invest in an index so let’s look at a couple
of investable barometers…
Gold
Miner ETF (GDX)
Junior Gold miner ETF (GDXJ)
It looks, to this writer, like a bottom.
BUT
Are gold and gold stocks going to go up, down or stay flat?
Because we’re smart ahead of the herd contrarian buyers – the buy low
sell high kind of buyer - we need additional confirmation if there’s a buying
opportunity currently being presented in gold stocks, or, is there more pain
before the golden gains?
The Federal Reserve tried to fix the U.S. economy by Quantifornication - stimulus measures.
Investors reacted to the Fed's unconventional efforts. Since the U.S.
dollar is the world’s reserve currency and precious metals are priced in
dollars they bought gold and silver to protect their wealth against currency
devaluation and inflation. Gold catapulted to a record in 2011 as investors
wagered on higher inflation and a weakening dollar.
The Fed ended its bond-purchasing program in October of 2014 and is
expected to start raising interest rates sometime in 2015, experts are
talking June/July.
How things have changed - the dollar
has recently gained a lot of new friends while gold has very few left.
The reality we now have is a global wide quantitative easing (QE) is
happening, every central bank is now creating, or will soon be creating money
as fast as they can. All of this money is looking for a home where it will
earn a return - a return that isn’t being
eroded by inflation - and right now their best option is
supporting the U.S. dollar by printing their currency and buying assets denominated in dollars.
Is a strong U.S. dollar going to continue? If so I would not expect
an upward move in gold’s or gold stock prices - gold is priced in U.S.
dollars, when the dollar is strong gold’s price is weak. Gold stock prices
react, or feed off investors sentiment towards gold.
Perhaps the best way to see where the U.S. dollar might be heading is
to look at the latest Commitment of Traders reports (COT).
The report tracks three main groups; large speculators, small
speculators and commercial traders. The commercial trader category is made up
of the businesses that use the products they're trading. They have access to
the best information, models and traders available.
They are the “smart money” in the markets. Speculators, most often
positioned on the wrong side of momentous changes, are considered dumb money.
When the Commercials are so massively on one side of the trade and
speculators so massively on the other I pay attention.
Commercial traders are massively short the dollar.
But there’s a currency battle going on. The Japanese Yen and European
euro are responsible for 70% of the dollar index, meaning just those two
currencies are responsible for 70% of the dollars moves, up or down and both
Central Banks are ‘QEing,’ Japan unbelievably so, while the U.S. Fed
tightens.
Fx Trade Maker
Conclusion
When you want to see the real reason why the U.S. dollar is weak or
strong, check out the underlying components of its index. Want to know where
the smart money thinks the value of the dollar, as measured against its
indexed basket of currencies, is going? Check out the weekly COT’s for the
Commercial Traders net short/long positions and changes. As of Friday, November
21st Commercials were long 8,292 contracts and short 59,031.
GoldSeek.com
Is following the money, the smart money, and golden gains on your
radar screen?
If not, maybe they should be.
Richard lives with his family on a 160 acre ranch
in northern British Columbia. He invests in the resource and
biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com.
His articles have been published on over 400 websites, including:
WallStreetJournal, USAToday, NationalPost,
Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost,
Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews,
SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek,
HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com,
MSN.com and the Association of Mining Analysts.
Please visit www.aheadoftheherd.com
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please contact him for more information, rick@aheadoftheherd.com
***
Legal Notice / Disclaimer
This document is not and should not be construed as
an offer to sell or the solicitation of an offer to purchase or subscribe for
any investment.
Richard Mills has based this document on
information obtained from sources he believes to be reliable but which has
not been independently verified.
Richard Mills makes no guarantee, representation or
warranty and accepts no responsibility or liability as to its accuracy or
completeness. Expressions of opinion are those of Richard Mills only and are
subject to change without notice. Richard Mills assumes no warranty,
liability or guarantee for the current relevance, correctness or completeness
of any information provided within this Report and will not be held liable
for the consequence of reliance upon any opinion or statement contained
herein or any omission.
Furthermore, I, Richard Mills, assume no liability
for any direct or indirect loss or damage or, in particular, for lost profit,
which you may incur as a result of the use and existence of the information
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