|HUI gold mining index – Daily observations over 6 months. (click to enlarge)
HUI to Gold regressionPrice trends of individual miners are correlated with the gold price. On an aggregated level, a linear regression between the HUI gold miners index and gold may for hold several years.
In order to derive a linear trend between two time dependent variables, it is necessary to eliminate time, retaining only the couples of variables. Here (HUI, Gold) couples are retained, whereby the gold price on the horizontal axis is used to ‘explain’ the aggregate price level of miners as revealed by the HUI index.
|Linear Regression Trends between gold and the HUI miners index - (click to enlarge)
This procedure was first applied to the HUI-Gold price trend prevailing from about mid July 2012 till late summer 2017, when it started degrading. In the below graph these are the blue dots, with the red regression line. After the summer of 2017, miners systematically were dropping below the regression line. The mismatch aggravated with miners moving sideways as gold was progressing reaching the top of its trading range around $1350/Oz. During spring 2018, gold repeatedly topped above $1350/Oz, yet miners ignored gold strength and slid lower. Corresponding points are the light blue dots in between the two regression lines.
This regression procedure minimizes the sum of squared differences of the dots (observed values) to the regression line. Brown dots and the black regression line show the new linear behaviour relating the HUI to gold:
|HUI/Gold ratio – Daily observations over 6 months - (click to enlarge)
|Synoptic graph of gold (left hand scale) in red and the HUI (right hand scale) in blue (click to enlarge)
|Residuals between the regression values and the observed HUI values (click to enlarge)
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