We are having a big family cookout today so this Weekend Report will be an abbreviated version.
I haven’t posted this combo ratio chart in several years but it was one that we followed very close back in the day. This ratio combo chart has the HUI:GOLD ratio on top with GOLD on the bottom. During the initial rally phase of the PM complex bull market starting back in 2000 the gold stocks kicked gold’s butt for the first three years or so into the December 2003 high on the ratio. Believe it or not that marked the end of the PM stocks outperformance vs gold. It’s been one long term downtrend for the ratio that still hasn’t completely reversed back up in favor of the HUI.
The ratio chart on top produced some very nice chart patterns on the way down including some reverse symmetry as shown by the red arrows. Note the big S&R line that produced the small red bull flag in 2001 and the reverse symmetry red bear flag that formed in 2012 on the way down. When the 2012 bear flag broke to the downside I suggested we could see .13 that was the all time low for the ratio which was also the measured move. You can see the price action undercut .13 during the 2015 – 2016 low which actually marked the all time low for the ratio. From that all time low the ratio began to rally where the HUI outperformed gold during that 2016 impulse move higher.
After that strong impulse move ended in August of 2016 the PM stocks began to underperform gold once again this time building out the 2016 falling wedge that is so prevalent across many of the PM stock indexes and individual PM stocks. It’s now been about 4 1/2 years later when the ratio first hit .13 and this week the ratio closed at .13 or no change. What the ratio does have going for it is the 2016 falling wedge has completed the breakout with the backtest now underway.
One thing we know absolutely 100% for sure is that the HUI is massively undervalued to the price of gold. At some point there has to be a revision to the means where the HUI and PM stocks in general should start to outperform gold in a meaningful way like in the initial first three years of the bull market earlier this century.
Have a great Father’s Day to all the dads out there. All the best…Rambus
