Thursday , 28 March 2024

The Bottom Is Not In Yet For Gold Or Gold Stocks – Here's Why

Are gold and gold stocks set to bottom? Not yet, according to my long-term measures of greed and fear. [I think a look at each of them below will substantiate my conclusion.] Words: 390

So says Cam Hui (www.humblestudentofthemarkets.blogspot.ca) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Hui goes on to say, in part:

The Silver-to-Gold Ratio

Consider, for example, the silver-to-gold ratio. Silver has long been regarded as a high-beta play on gold. The chart below of this ratio shows that while sentiment has descended from levels indicating excessive bullishness, they are not at levels consistent with a long-term bottom yet

 

 

The TSX Venture-to-TSX Composite Ratio

Here in Canada, we also have a good measure of speculation levels in resource and junior resource stocks. The chart below shows the ratio of the TSX Venture Index, which is comprised mainly of junior resource companies, against the more senior and established TSX Composite.

This relative return ratio also tells the story of falling speculative fever, but readings are not at levels consistent with capitulation bottoms. (Note that the scale of this chart is 13 years, which is the amount of history available, compared to the silver/gold ratio above that has a 20 year history.)

 

 

The HUI-t0-Gold Ratio

What about the ratio of gold stocks to gold? The chart below shows the HUI to gold bullion ratio. While we are nearing levels where a meaningful bottom can be established, readings are not at screaming buy levels yet.

 

 

The above readings are suggestive of a tradable short-term bottom in gold and gold stocks is coming up, but a long- or even intermediate-term bottom may have to wait. Given that gold prices are deflating in the wake of the French and Greek elections, that short-term bottom may be fast approaching.

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Conclusion

My inner trader tells me that I could buy here, but I need to carefully define how much risk I am willing to take. My inner investor tells me that there is value at current levels and I can accumulate positions, but there may be better entry points down the road.

 
*http://humblestudentofthemarkets.blogspot.ca/2012/05/bottom-for-gold-and-gold-stocks.html (To access the article please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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