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Precious metals mining in 2018: a dark cloud with a silver lining

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Early last year we witnessed gold rallying rapidly to what was to be its 2018 high. Till about mid May, the yellow metal managed to uphold $1300. Miners however have mostly been lagging the advance of gold, with the HUI/Gold ratio in decline and bottoming early September, after gold made its low by mid August.

HUI/Gold ratio – Daily observations year-to-date (click to enlarge)

Contrarian gold miners lag gold as it advances to its late January high, which was also going to be the 2018 high. As gold remained strong, mining investors were increasingly skeptical and sent miners lower, with the HUI/Gold making a mid March relative low.  Still contrarian, miners ignored initial gold weakness in May and June, as the gold slide was countered by a rising USD and general stock markets were recovering from a first sell-off.  By the time HUI/Gold peaked early July, miners seemed to anticipate a gold recovery.  Yet the opposite happened, sending miners and the HUI/Gold in a tailspin by mid August. You find the last 6 months in better detail below:

HUI/Gold ratio – Daily observations over the last 6 months (click to enlarge)

HUI/Gold made a nice inverted head and shoulder pattern from mid Aug to early Oct, which was pinpointed on Sept 29.  However enthusiasm proved short lived. In the second week of Oct miners rallied as gold was breaking above $1200 again. However the rally was followed by a sell-off two weeks later, though the yellow metal upheld $1200 until well into November. HUI/Gold then bottomed as gold kept flirting with the $1200 resistance. The ratio has been in a slight uptrend since then, however unable to lock-in any meaningful advance, despite gold firming to $1280 on Dec 28. Speculators might attribute the poor miner advance after Xmas to the roll-over of the COMEX contract to Jan 2019 as leading month, adding some contango premium to the gold price. Tax-loss selling always is yet another good excuse for miners to lag upon any hesitation of the gold price during Nov and Dec.
Six months ago, HUI/Gold posted at 0.14 with the yellow metal a few percent lower than where it stands at today. As soon as investors run out of excuses as why to sell regardless the gold price trend, we may revisit that 0.14 level again. That wouldn’t be exaggerated at all, given that HUI/Gold was at 0.155 by the end of 2017 with gold at $1300. The yellow metal is down only 1.7% over 2017, despite USD strength and four rate hikes.

Long term retrospect

The below graph with weekly observations of HUI/Gold over three years, shows the 2011-05 bear market bottom (actually by mid Jan 2016) followed by the euphoria of the gold and miners breakout and the new slide to bear market valuations.
HUI/Gold ratio – Weeky observations over 3 years (click to enlarge)
Moving averages on a weekly graph standard are 50 and 200 weeks. The red longest term moving average has been trimmed to 150 weeks or nearly 3 years. It is almost completely flat, essentially showing the bear market bottom. HUI/Gold stays below the declining blue 50 weeks moving average throughout most of 2017 and 2018. 
Table I
Up from Min
Down from max
Table 1 illustrates where gold and the HUI miners index currently are relative to their 2017-2018 closing max and min. Note that the closing max and min for gold and for the HUI were not on the same date.  Gold only quotes 5.7% below its rolling 24 months high and 13.5% above its low.
The HUI index on the contrary has much more work to do, quoting 28.6% below its rolling 24 months high.


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