Saturday, September 6, 2014

Gold Miners to Gold ratio rolling over

It has become axiomatic, for good reason, that the mining shares tend to lead the gold price whether they are moving higher or moving lower. For whatever reason, the connection is fairly solid and has been for many years.

That being said, the combination of a deteriorating chart for the metal and the fact that the ratio ( HUI to Gold) is rolling over, does not bode well for gold at the moment.

Take a look at the following chart noting the HUI/Gold ratio and comparing that to the Gold price ( dark blue line). Can you see the very close connection? You can almost lay the gold price atop this ratio and see where it is generally headed as the lines follow each other quite closely.

It is pretty accurate with some brief exceptions. I have noted one of those within the ellipse area in late July the shares seemed to hold up a bit better than the overall gold price. Come August however, the relationship seems to have been restored.

The indicator below is tracking the movement generating both buy and sell signals on the metal based off the action of the shares. As you can see, it is currently in a bearish mode.

Here is a chart of the GDXJ or juniors. It failed to extend past 46 and now looks like it is heading back down to the bottom of a potential range near 34-33.

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