With continued uncertainty in global markets, investors are wondering what’s next for gold, silver and the mining shares.
“We must not lose sight of the fact that the U.S. economy and markets are a hall of mirrors. Thus they are not as they appear on the surface.” — Bill Fleckenstein
King World News: Today the HUI Gold Mining Index closed just 3.5 points away from a new 52 -week high and the HUI is also now very close to hitting 39-month highs. The action in gold, silver and particularly the mining stocks has been relentless on the upside. Despite the recent rally, the mining shares remain extremely discounted on a historic basis vs gold…
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There has been a great deal of worry about the recent and rapid advance in the gold and silver mining shares. This is why it’s so important to take a step back and look at the big picture. Below KWN readers around the world can see a 32-year chart of the XAU (mining share index) vs Gold ratio.
King World News: The reason the above chart is so important if you own gold and silver mining shares is that it shows the mining shares in recent years have collapsed vs the price of gold. If the median point of the XAU vs Gold is about 0.25, that means the mining shares will have to outperform the price of gold by a ratio of more than 3:1 just to get back to the median historic level.
The problem with that theory is that when charts go to extremes in one direction, they turn around and go to extremes in the other direction. So in coming years we should expect to see the XAU vs Gold ratio most likely break above the all-time high at 0.4. This would mean the mining shares will outperform the price of gold by a staggering factor of at least 5:1!
A very good example of this type of behavior can be seen below on the Gold/Oil ratio.
The Gold/Oil ratio hit extreme all-time lows in August of 2005. What did the Gold/Oil ratio do next? It went to extreme all-time highs in the other direction, actually peaking well above the 40 level before pulling back!
So while it may seem crazy to think of the XAU vs Gold ratio heading from its current level of 0.08 to above 0.4, it’s important to understand that’s just the way markets work — they go from one extreme to the other.
For investors and traders this may not affect the very short-run, but over the long-term it will mean a radical outperformance by the mining shares vs both gold and silver. This should help calm some frayed nerves when there are pullbacks during the months and years ahead in what will prove to be the most historic outperformance of the mining shares vs the metals in history. It’s fine to take profits on your trades, but do not give up your core positions in the high quality mining shares until the ratio is at least back to the median point, which is five-times higher than the current level.
***KWN has now released the extraordinary audio interview discussing the gold and silver markets, threat of the robots and much more with Jeffrey Saut and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also Just Released: 50-Year Veteran Issues Major Warning, Says Silver To Hit New All-Time Highs Click Here.
***KWN has now released the timely powerful audio interview discussing the gold and silver markets with Rick Rule and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.
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