Chart courtesy of Stockcharts
As we can see from the above chart the DOW Jones Industrial Index and Gold are heading in opposite directions and the Gold Bugs Index as represented by the HUI looks to be finally de-coupling from the DOW.
Historically the gold producers have reacted to a change in gold prices on a ratio of approximately 3:1, without putting too fine a point on it. However in recent times this has not been the case as as gold stocks have failed to keep up with gold, never mind outperform gold. The recent de-leveraging saw gold shares dumped along with every other sector of the market even though gold stood its ground. Now if we look at the last few months the chart shows us that the gold producing stocks are de-coupling from the influence of the DOW and reacting to the change in gold prices which is exactly what we want as that is where our hard earned cash is deployed. We do need to add a note of caution though as the DOW is testing support at the 7500 level and had a poor day today when it dropped 297 points or 3.79%. If the broader does sell off hard and fast we may be caught once again in the down draft. The next week or two will be interesting and should also confirm or not that the gold stocks are moving in unison with the metal.
Keep an eye on these three players along with the USD and the price of oil when determining your next trade.
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