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HUI/Gold Ratio - Another resolve strengthener...

|Includes: GDX, GDXJ, SPDR Gold Trust ETF (GLD), GOEX, SLV

I forgot to mention this one, which we have been tracking since NFTRH109, 4 weeks ago.  Nominal HUI has made a profound break upward, loading some seemingly jaw dropping targets.  But look what else has happened; we noted weeks ago that Huey broke the weekly downtrend (red line), and we have been awaiting a rise above lateral resistance and a cross of the EMA 20 above the EMA 80 .  You'll be hearing about the HUI-Gold ratio (HGR) quite a bit in goldbug land going forward.

Today is even better thus far, although the activity is not shown on this chart, which is frozen until the Gold continuous contract is updated.  Are the gold miners undervalued vs. bullion now as they were in 2001?  That is what this chart is suggesting.  But the condition can persist for years, so it is important to watch for upside triggers. 

I guess there was a reason for all those years of underperformance as the gold stocks failed to keep up due to declining fundamentals - no matter what gold bug perma-bulls claimed.  We have head spinning upside targets, but this ratio chart has barely gotten going.  Again, if it triggers, watch out above.  But then we are already so far along and anecdotal evidence suggests many people are not a) aboard or b) even aware of this truly bullish sector.  That is a lot of fuel that has been hand wringing up to this point.  We have the potential for mania - and a heck of a lot of volatility going forward.

I would note that using the word under 'valued' above really means 'cheap' compared to bullion.  Ultimately, the gold stocks are a play; a play that could blow off in spectacular fashion one day.  HGR could be a sling shot ready to release, if the current breakouts hold.  And with global forces attempting to fight a losing battle with decelerating economies and still unwinding credit problems, I do not see why they won't.  The right mix for the gold stocks is economic CONTRACTION being fought with INFLATIONARY policy.

If policy makers succeed in bringing about widespread economic growth - inflationary or otherwise - the gold miners' time to shine will likely be up.  Meanwhile, we have come a long way off the bottom of Armageddon '08, which halted the greed trade in the gold sector along with all other sectors.  With the epic breakout still in force, it seems we have barely begun the next leg of the bull, however.

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Disclosure: No positions mentioned, long the PM sector