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No thaw for gold and silver mining

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Europe and the US thaw up after some severe winter weather. Winter frost continues however for gold and silver miners. Not only has gold retreated $317 or 12.5% from its early August all-time-high, gold miners have been lagging: the HUI miners index slid 27.5% over that same time stretch.

The usual approach on the Gold Miner Pulse page is to show a HUI/Gold plot over last 6 months. We extend this to nearly 8 months: July 2020 – Feb 2021 to fully capture the topping of precious metals and miners early August.

Basket of Unhedged Gold miners (HUI) relative to the gold spot price over 8 months (click to enlarge)

Miners were relatively strong while gold was nearing its 2011 ATH after mid July. Gold breaking above $2000/Oz was however met with disbelief and miners were lagging any further ascent of the gold price. From September till now, the HUI/Gold graph is putting down lower tops and lower bottoms, leading to the 0.1483 reading on Feb 19. HUI/Gold put down a ‘death cross’ soon after new year, when the 50 dma slid below the 200 dma.

Despite gold miners posting record cash flows during 2020Q4, investor enthusiasm vanished. Fresh money flows into chasing Bitcoin to ever rising new all time highs. Since nominal 10Y treasury rates have started rising, negative real interest rates (the main driver for a buoyant gold market) waned.  Another cloud over the gold market and one more reason why gold miners keep lagging.
* * *
We now extend this to a 12 months period (mid Feb 13, 2020 – Feb 12, 2021), including for the last time the mid March plunge upon the Corona outbreak. 
Basket of Unhedged Gold miners (HUI) relative to the gold spot price over 12 months (click to enlarge)

The HUI/Gold graph put down a death cross right at the bottom of the market at record low valuations for miners. The rapid recovery lead to a golden cross (50 dma rising above the 200 dma) by the end of May. That proved to be a decent buying opportunity after the initial recovery rally fizzled out and before the gold rally started picking up steam. This also puts the recent downturn into perspective: panic is a long way off, but a grinding downturn also makes investors weary.

Silver miners
The yellow metal retreated less than did gold since reaching a 7+ high early August near 30 $/Oz. Moreover the recent short squeeze attempt by small speculators brought that level back into sight. Nevertheless miner enthusiasm has been meek to say the least. As a proxy for aggregate silver miner performance, the Global-X silver miners ETF, SIL is used. Its quote is plotted relative to the spot silver price. First graph shows 8 months as before.

Global X silver miners ETF, SIL relative to silver since July 2020 (click to enlarge)

Remarkably silver miners start weakening even before silver reached its 7 1/2 year high early August. By end Sep 2020 SIL/Silver put down a death cross. Paradoxically the early Jan 2021 peak of SIL/Silver coincided with silver sliding shortly to $25/Oz and miners upholding better. The attempted silver short squeeze also impacted heavily shorted miners significantly which lead to a modest and short lived rise of SIL/Silver early February. Silver miners eroding further, relative to the silver metal price doesn’t bode well for the near future.

The 12 months graph of SIL/Silver shows the ratio to slide to its mid Feb 2020 level, when silver quoted around $18 rather than $27. 

Global X silver miners ETF, SIL relative to silver mid Feb 2020 (click to enlarge)

Silver miners had a horrible time, with the relative peak early May and the absolute peak of the miners in July already far behind us.

Canadian Gold and Silver Mining indices

How gold miners are performing is shown by the capitalization weighed gold miners index of stocks included in the Gold Miner Pulse database (yellow diamond symbols). Note that most quotes are in CAD, which has been fluctuating to the USD. The blue graph shows the GMP silver miners index. The loonie quoted above parity to the green back in Nov 2010 and its long term depreciation mitigated the miner loss during gold miner bear market.

The silver mining index was the first to break above parity, despite silver about flat from where we started over 10 years ago.

GMP list based (and capitalization weighed) gold (yellow dots), silver (blue) and equal weight (red) miners indices. Reference 1000 on Nov 19, 2010  (click to enlarge)

Note that the index calculation always is compensated for composition changes. 

Performance graph

There is an important performance disparity among the gold and silver miners of the GMP database.  Several laggards seem moribund. The median (or middle) miner (with an equal number better and worse) is losing 28.5%: still well below break even. The average is still posting an 9.5% profit. The performance distribution is slanted towards the high gains.
GMP Miners sorted by loss to gain since inception on Nov 19, 2010. Note that the top 12 miners are left out to avoid excessive scale expansion Click to enlarge

There still are 6 miners/explorers losing 90% or more, with 3 thereof down over 95%. At the opposite side 35 miners now are quoting above their Nov 2010 mark, (again) led by Aura Minerals; 16 stocks have doubled. The top 12 miners are omitted in the above graph to avoid excessive scale expansion, but you find the top-14 in full detail below:

GMP elite miners, sorted by gain since starting observations in Nov 2010 using a logarithmic view with ticks 100% apart, (Click to enlarge)

Related blog articles

Several more detailed articles focusing on the longer term have been published. These are using the same approach as this blog page and still are a good read to grasp the historic perspective:


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