"I think we'll all keep pushing each other, which is a great thing. " Jay Roach
About a week ago I wrote an article titled "Gold Miners Set to Lead Strongly Again" (here) in which I argued that gold miners likely would outperform the broader stock market more so than gold itself given relative weakness, mean reversion and a continuation of the reflation theme I keep stressing which is the idea that 2012 could result in risk assets performing similarly to how they did in 2003 and 2009. My colleague Ed Dempsey has been addressing this frequently in his video updates, available at here.
Gold (GLD) itself took a bit of a strong drop following Bernanke's most recent testimony, but I maintain the idea that gold miners on the stock side are more likely to stage a period of outperformance in the near-term than gold itself simply because of beta exposure. Having said that, junior gold miners which are on the smaller-capitalization side of the industry themselves appear to be at an interesting juncture relative to the broader small-cap Russell 2000. Take a look below at the price ratio of the Market Vectors Junior Gold Miners ETF (GDXJ) relative to the Russell 2000 ETF (IWM). As a reminder, a rising price ratio means the numerator/GDXJ is outperforming (up more/down less) the denominator/IWM.
Junior miners collapsed in early September as the summer crash was underway but appear to have bottomed at the very end of 2012. A significant spike has since occurred as money poured back into gold stocks on the sudden reflation theme I've been stressing following the first week of January in my writings. The relative performance has since been volatile, with it a bit unclear if a period of strength or weakness will ultimately set in. However, I do think the odds favor continued leadership in junior miners relative to broader small-caps given the way the industry has behaved in prior rising inflation expectations environments.
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.