Gold miners persistently lagging the metal
However the HUI plunged 7.17% leveraging gold down sixfold. While miners had been persistently lagging the metals throughout 2017, their decline currently is aggravating.
Very seldom in my blogging career an article has been so ominous as the ‘Persistently lagging the metals‘ posted last year on Oct 29.Whatever well paid sell-side analysts may want you to believe, the gold mining sector is not the place to be. It may reward you during the short stretches up, but you may end up penniless over the long haul. Not surprisingly the HUI/Gold ratio dropped to 0.1327 on Friday Feb 9, a two-year low (since shortly after the onset of the gold miner recovery early 2016).
Though gold ($1158/Oz) was way below the current level as trading started on Jan 3, 2017, HUI/Gold posted at 0.164. Even in absolute index points HUI closed at 189.9 on the first trading day of 2017. Meanwhile HUI is down to 174.5, though the yellow metal added about $160 in little over a year.
During 2017 gold successfully tested its $1200 support as the metal retreated after an initial recovery from the Dec 2016 low.The graph below, covering 9 months, illustrates the gradual improvement of the gold market, with progressively higher lows and the January 2018 top also breaking above the 2017 high.
Gold Price (spot): daily observations since early May 2017 |
The graph ends at the Feb 9, 2018 close at $1315.7. Most of the 2018 advance was lost, yet gold ended 2017 rallying to $1302.5. Whereas the July swoon went below $1210 intraday, last December trough bottom was around $1240. The situation is fundamentally different for gold miners: you find the HUI index covering the same period below:
HUI ‘unhedged’ gold miners index: daily observations since early May 2017 |
Now follows the HUI/Gold ratio graph. The gold miner pulse page shows the current situation over a six months perspective. Extending the focus to 9 months as before, the below graph is illustrating the progressive deterioration of the gold mining sector.
HUI/Gold ratio: daily observations since early May 2017 |
At 0.1327, HUI/Gold is back to its level on Feb 22 of 2016, when gold quoted at $1225.4. By June 24, 2016 Gold had rallied to its current level with the HUI posting at 237.9 and HUI/Gold at 0.1808. This illustrates well the deterioration gold miners suffered since the first gold recovery after the four year bear market. Yet this downturn is relatively recent. For most of the gold bear market, the complete 2016 recovery and its breakdown and even the onset of the 2017 recovery, HUI correlated well with gold and an excellent regression line predicted where the HUI was expected at the actual gold price.
Gold -HUI spread and regression trend line. |
- Yellow dots (top right) cover the period leading towards the Aug 2011 all time high and shortly after, when the HUI failed to catch up with the rising gold price.
- Blue dots correspond to the lump part of the gold bear market (from summer 2012), throughout the 2016 boom-bust and into the 2017 recovery until early August 2017. They obey well the regression relationship.
- The red dots correspond to recent observations, systematically below the regression line and deteriorating progressively as will be shown.
HUI – Gold synoptic view
Gold ( red graph, left scale) and HUI (blue graph, right scale) since Dec 15, 2016 |
Parameters for the short term linear regression are calculated using data since Jan 2017 only.
Mid term view
oN feb 9
|
Up from low
|
Low
|
High
|
Down from High
|
|
Gold
|
1,315.7
|
16.6%
|
1,128.2
|
1,357.7
|
-3.1%
|
HUI
|
174.55
|
6.8%
|
163.5
|
221.5
|
-21.2%
|
What is at hand in gold mining ?
Prior articles on this topic:
Source: http://gwyde.blogspot.com/2018/02/gold-miners-persistently-lagging-metal.html
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