Saturday, 7 April 2012

Miners continue their downward spiral

Precious metals miners are unable to change momentum: despite a recovery of both the gold and silver price on Maudy Thursday (April 5), both our GMP-list based indices continued their slide, with a third consecutive low for the gold miners index. The silver miners index also sets down a fresh low, however the previous one dates back to Dec 28, 2011. No better news for the equal weight index – which is a decent proxy for the junior performance – with equally a fresh low since Dec 28, 2011.
With the cap-weighted gold miners index now at 723, the index has shed 27.7% since it started off on November 19, 2010. Over the same time frame, gold is up 21.6%. The silver miners index lost 19.4% over this time frame, however silver rose 30.8%. (See also the graphs on the blogpage in
The situation hasn’t improved at all in 2012: with gold still up 4.1% year-to-date (despite repeated sell-offs) and silver up 13.9%, the gold miners index lost 11.2% and even the silver miners index is down 4.5%.

Gold and the HUI miners index

The HUI index is off 19.2% (some HUI index components have outperformed the Canadian large cap miners, moreover our quotes are in CAD: any comparison is therefore biased), yet with gold up 21.6%, the HUI/Gold ratio has come down to 0.270, while on Nov 19, 2010 we felt more comfortable with a 0.406 HUI/Gold ratio.
Drawing a wider perspective: For a large stretch of the gold bull market, from August 2003 till March 2008, the HUI/Gold used to range around 0.50.
We did see values lower than the current 0.27 at the nadir of the implosion of financial markets in autumn 2008. Did this last long? No, there were only 20 trading days with HUI/Gold < 0.27. Moreover these days were not in one continuous stretch, but rather segments of a few ephemeral spikes down of the HUI/Gold ratio. The longest stretch were 10 trading days with HUI/Gold below 0.27 from Oct 21 till Nov 03 of 2008. And with HUI/Gold at 0.33 by mid December 2008, the true bargain days were over.
HUI index (blue, left axis) and HUI/Gold ratio (red, right axis) in 2008-09. The HUI/Gold ratio dropped below the actual level 0.270 (indicated in green) only for a few short time stretches, when HUI/Gold was erratically spiking down at the height of the panic of the financial market implosion. (click to enlarge)

Resource data, valuations ...

The miners spreadsheet  with the gold miners valuations based on resource data has been updated. Not only inferred resources get cheaper by the day, even minable reserves are down to bargain level.

… and miner performance

The performance disparity graph already gives an awful indication, but on the Miners news page ( you get it in full detail. Barely a 30% of our miners are quoting higher now than they did on November 19, 2010 (with gold at $1342). This implies that even among miners in the "outperformers" quintile, the bottom section (9/20) quote at a loss, among them GoldCorp, one of the successful very long-term plays. Outperforming the metals has been damn hard, even for seasoned stock pickers.

Going forward: When will Gold Stocks break out?

While optimists always talk about early birds catching the worm, gardeners are well aware that the early blossom most often gets frozen.
I leave it to some gurus to formulate an appropriate answer to the above question:
1.      Gold-Stock Panic Levels
Adam Hamilton  
2.      Gold Juniors to Explode?
Scott Wright  
3.      Gold's Breakout Or Gold Stock's Breakdown?
(P. Radomski)  
4.      Gold QE3 scares
Adam Hamilton  

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