Saturday, 25 May 2019

Miners disappointing

Miners continue plunging on any precious metal retreat and follow almost reluctantly while gold and silver are recovering. Expectations have aligned with experience until this infernal dynamic got deeply encrusted in the investor mindset.

The blog title 'Miners disappointing' therefore is an understatement, inspired by a previous article Miners will continue to disappoint (Jan; 26, 2019). That seemed to be a bold statement as precious metals had been in an uptrend with miners ultimately responding while further pessimism seemed out of place. However I was merely sensing the valley behind the hill we were climbing. This valley turned out to be another precipice.

HUI versus Gold

The major gold miners index HUI, when divided by the Gold price gives a good idea how miners are performing relative to the yellow metal. HUI/Gold is monitored over a 6 months period on the Gold Miner Pulse page giving a short overview of the recent miner performance. We are extending the perspective to a full year, which still enables using daily observations.

HUI /gold over the past year (May 2018 - May 2019)
It is useful to post the gold graph on the same time scale for that period. Though the yellow metal has been more or less range bound, price fluctuations nevertheless extend over $150 this past year.

Gold price (USD/Oz) from May 2018 till May 2019, daily observations at the COMEX close.

First few observations: HUI/Gold resisted the downtrend of the yellow metal into July 2018. Hence, miners weakened in lock-step with the yellow metal while the pace of the gold slide seemed moderate and the horizon seemed set for a prompt recovery. Gold broke below $1240 before mid July. A hesitant technical recovery didn't bode well and the gold slide resumed with a precipitous dip by mid August to $1170.

In the mean time HUI/Gold slid from 0.14 to 0.117. Mining investors were in despair and yet the worst was still to come: Despite gold moving sideways in September, HUI/Gold plunged to its 12 months low at 0.11 mid September. Miners lost about 22% more than had the yellow metal.

The gold recovery set in early October, modestly at first but confirming towards end 2018. The rally extended into 2019 with gold peaking on Feb 20. 

HUI/Gold started a shaky uptrend from the oversold mid September 2018 bottom till mid April 2019. Yes indeed: we have seen a miner come-back with the gold bugs again resisting initial gold weakness while the yellow metal kept flirting with its $1300 resistance. After that finally gave way, it has been back to square 1 again. Though gold now stands near $1285/Oz, the HUI/Gold ratio dropped to 0.1161: just below the level the ratio slid to at the mid August 2018 gold plunge.

HUI gold miners index over the past year (May 2018 - May 2019) - daily observations.

Yes there are flares of hope when miners outperform the yellow metal. Unfortunately they are scarce, far apart and unpredictable. While gold is more or less flat over the past year, the HUI index gave way almost 20%.  Over the long haul, holding on to the yellow metal has been a less discomforting strategy. 

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