• 680 days Will The ECB Continue To Hike Rates?
  • 680 days Forbes: Aramco Remains Largest Company In The Middle East
  • 682 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,082 days Could Crypto Overtake Traditional Investment?
  • 1,086 days Americans Still Quitting Jobs At Record Pace
  • 1,088 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,091 days Is The Dollar Too Strong?
  • 1,092 days Big Tech Disappoints Investors on Earnings Calls
  • 1,093 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,094 days China Is Quietly Trying To Distance Itself From Russia
  • 1,095 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,099 days Crypto Investors Won Big In 2021
  • 1,099 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,100 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,102 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,102 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,106 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,106 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,107 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,109 days Are NFTs About To Take Over Gaming?
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

Will Miners Underperform Precious Metals in the Weeks to Come?

Based on the August 24th, 2012 Premium Update. Visit our archives for more gold & silver analysis.


 

Fish are jumping and the cotton is high. Yes, it's summertime and the living is (quantitatively) easy. At least that's how it looks from the Federal Open Market Committee minutes for the July/August meeting that revealed support among some of the members for a new round of quantitative easing. With the release of the minutes Wednesday, gold went up and the U.S. dollar took a dive. The Fed members see three pitfalls for the economy-- the sovereign debt crisis in Europe, a global economic slowdown led by China and other BRICs, and the fiscal cliff, which could result in substantial fiscal contraction. (Fed Chairman Ben Bernanke has repeatedly asked Congress to solve the problem, but with a Presidential election coming in November it is difficult to see how Republicans and Democrats will reach an agreement.)

Gold investors combed through the text of the FOMC's latest minutes to find a nugget that will make the value of their nuggets go up. What they found was a single sentence towards the end of the meetings that went like this:

Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.

This sets the stage for further monetary easing possibly at the Fed's Jackson Hole, Wyoming meeting slated for the end of this month.

Waiting for other hints from the FED, let's now turn to the technical part of today's essay with the analysis of the mining stocks (charts courtesy by http://stockcharts.com.).

$CDNX (S&P/TSX Venture (CDNX) Composite Index) TSXV

In the Toronto Stock Exchange Venture Index (which is a proxy for the junior miners as so many of them are included in it), we see a rally but it is quite small especially when compared to the recent several-week-long rally in the general stock market. It is likely just a correction after a breakdown below the recent huge head-and-shoulders pattern, so the implications are bearish for all precious metals mining stocks, not only for juniors.

Let's now move on to a very interesting chart that gauges the performance of mining stocks relative to gold. It can shed light on which group of assets (miners or the underlying metals) will perform better in the next couple of weeks.

performance of mining stocks relative to gold

In the miners to gold ratio chart (if you are reading this essay on sunshineprofits.com, you may click the above chart to enlarge), the medium-term trend is down and the recent rally here does not change the overall outlook. A short-term overbought status has actually been created, a situation not seen since previous local tops and the final top of 2011 which followed a big rally. The implications are bearish, the trend is likely to reverse, and the miners are likely to underperform the underlying metals in the coming weeks.

Summing up, the situation is less favorable for the precious metals mining stocks than it is for the underlying metals.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

 

Back to homepage

Leave a comment

Leave a comment