A Surprising Gold Chart

by: Tommy Humphreys

The recent outperformance of the gold miners (NYSEARCA:GDX) relative to gold itself has been quite striking:

My primary takeaways/interpretations of this recent outperformance are as follows:

  • Investors are betting that gold is at the end of a cyclical bear market and on the verge of launching into a new uptrend.
  • In the past when there has been a large divergence between GDX and gold, more often than not GDX has been right. This was perfectly evident as the bear market began taking hold in late 2011 and 2012 when mining stocks stopped making new highs, and began feeling very high even as gold itself was percolating above $1700/oz.
  • Gold miners have finally right-sized their cost structure and are set up with considerable operating leverage to higher gold prices - investors are getting in ahead of the game.

While we do not know if they will end up being rewarded, we can definitely say for certain that investors have taken a shine to the gold miners in recent weeks.