Thursday, February 11, 2016

GOLD:HUI ratio : Is another gold bull market starting?

Recently we showed (Gold:SPX ratio persistent RSI divergence and lessons from the past) that there is a striking similarity of the last 3 years of gold's bear market in late 90's with the last 3 years of the current bear market.A huge divergence between gold:spx and its RSI has been built.We expected this divergence to give way and the ratio to increase on spring -summer time-frame (meaning a significant overperformance of gold relative to SPX).It seems that the expected move is actually happening now.
However in order for this move to be a prolonged one we believe that a significant overperformance of gold miners(GDX,HUI) relative to gold is imperative.
During the early stages of the last gold bull market (1999-2011) initially we witnessed a spike in gold price in 1999 which was followed by a significant retrace.That gold bull market started to run relentlessly when miners started to overperform gold.In the following chart we can see that back in early 00's gold price started to move upwards significantly after HUI:GOLD ratio EMA21 crossed bellow EMA55 and in the same time its RSI sunk below 30.

We expect a similar overperformance of miners(HUI) relative to gold in order for the new gold bull market to be confirmed.