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ericfocuspointcap
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Sales & Marketing Director for emerging money managers as well as trader/investor for my personal account.I look for reversion to mean trades mostly. For more info, please email me at eclark@breakaway-partners.com
  • XAU/GOLD Ratio Widest In 30 Years, Mining Stocks Your Best Bet Now 1 comment
    Feb 17, 2013 10:45 AM

    I did some work comparing the XAU Index(stocks) to Gold Futures prices. I compared the prices to each other to create a ratio from 5/1/2003 to today, very interesting results. The average ratio from May 2003 til today is 6.2. When the ratio is very low, gold is a better value historically and when ratio over 6, stocks tend to be a better value.

    I also found an article(below) that did the same thing back to 1984. The normal band for this ratio is between 3.7 and 5.10, its been as high as 10.5 (sept 2012 meaning the stocks were VERY undervalued to gold) and as low as @1(early 1996 meaning gold was a much better value than the stocks)

    http://rambus1.com/?p=6598

    Today the ratio is 11.16! Can it go higher? Absolutely but using data going back to 1984 or 29 years, at today's prices, the XAU (GOLD STOCKS) is the most undervalued to GOLD it has been in 29 years. My experience is when the delta gets to be 2 or 3 standard deviations away from its historic norm, there's a wonderful mean reversion trade approaching. Yes, I own them now: GG,ABX,NEM,NGD,AUY,SLW,PAAS. Using 1 example. Take PAAS. Market cap of $2.56B. Working capital of roughly $1b, no debt and assets/reserves of $25-30B. I think that qualifies for a massive discount to current value. There's many stories just like this one. Patience & deep breathes, your ship will come in one day, don't get bucked off this horse!

    Disclosure: I am long GG, NEM, ABX, NGD, SLW, PAAS, AU, MUX, AUY, IAU.

    Additional disclosure: In my opinion, people writing about opportunities that do not have any exposure to stocks that benefit from the concept are not as credible as people willing to risk their own capital. These are all very liquid stocks. Make sure you understand your own risk profile as well as the risks involved with stocks you own

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  • The_Hammer
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    eric, the xau to gold ratio has gone even more extreme as u wrote this insta. what is it now? how many standard devs from norm?

     

    ever look at the $bpgdm Gold miners bullish % index? this one is screaming bottom too.
    10 Mar 2013, 10:22 AM Reply Like
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