Wed August 24, 2011
An alert TMP reader asks about gold mining stocks. One way to view the mining stocks is on a ratio chart of a mining index, like the XAU versus the price of the actual metal, gold. Now the XAU can rise and fall based on whether
the gold price is rising faster than the mining share index
or, the mining share index can fall on its own while the metal price stays the same
or both
But no matter, the only thing that matters is the relative price performance.
Ratio chart XAU to Gold -
In fact our alert reader was asking if the mining shares were about to swoon similar to 2008.
The bars fall when the XAU is falling relative to gold. As one can see, the drop is not as extreme as in 2008 but the drop is still there. We suspect this bear market will be much slower, catching most investors off guard as the sell off in August did just that (well not TMP readers of course).
At bottom the Slope is falling.
The index is under a weekly PAR SAR Sell indication. So for the time being, expect the mining shares to be poor performers relative to gold. Notably the stock rally yesterday dropped the gold price 3.5%.
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