"All of our reasoning ends in surrender to feeling." - Blaise Pascal
Taking a break for a moment from my series of writings calling for a correction, I've gotten quite a few people on Twitter asking me to write about Gold Miners, which for lack of a better term have been a heart-breaking group to invest in relative to the S&P 500 which has gotten considerably more love from money. It appears that poor management, cost containment and political risk in the countries Gold is mined has been a major headwind for the group. In addition, with Gold itself not getting too much of a bid, even the case for Miners based on commodity prices is being aggressively challenged.
The relative underperformance has been stark. Take a look below at the price ratio of the Market Vectors Gold Miners ETF (GDX) relative to the S&P 500 (SPY). As a reminder, a rising price ratio means the numerator/GDX is outperforming (up more/down less) the denominator/SPY.
Since December of last year, weakness has been stunning, and appears to be borderline acting like it is in a relative crash given how far away the ratio is from its 20 trading day moving average. Yes, the trend is still down, but I do wonder if a mean reversion trade is soon to come given what could be a capitulation phase in Gold Miners. What could be the catalyst? It could be Gold itself alongside potential M&A activity in the industry group. While the risks are high from an operational standpoint for most mining companies, the further down equity prices go, the more attractive a takeover candidate becomes, which in turn could put a bid in stock prices.
Bottom line? Continue to watch this ratio - a mean reversion trade could occur.
Additional disclosure: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.