Gold shares may (finally) begin to lead

Are gold shares beginning to lead? Key gold bugs, and other observers, think maybe.

Last week’s turbulent markets ended with the S&P 500    down 2.48% but the CME December gold contract    settling up 0.48%. Significantly, the gold shares, as represented by the NYSE Arca Gold Bugs Index    , closed the week up 1.37%.

This means the HUI has quite decisively broken above the downtrend in place since the Sept. 8 peak. Perhaps more importantly for the generalist investor, it confirmed a pattern of outperformance against the general stock market which began in the middle of last month.

Trader Dan’s Market View web site caught this on Thursday evening, putting up an impressive chart of the HUI versus the S&P 500 (not much altered by Friday’s action) and commenting:

“The gains in the mining sector are outpacing the gains in the broader equity markets, while on downside trips they are holding better. It would be a pleasant change if there were a growing group of investors who were viewing gold and silver shares as defensive holdings in the current economic climate.”

On Friday “Trader Dan” Norcini amplified: “Many investors have come to view the sector as generally undervalued, based on the good numbers being reported by several miners and the fact some were raising dividends.”

“The result was a move back into the large gap region formed in September when gold and silver were both taken down quite hard. Last week, the [HUI] index mounted its first push into the gap. This week, it found willing buyers who came in and took it further. The index now has the potential to mount a push towards 600. If it can do that successfully, it should be able to close the gap completely. That would be a major victory for the bulls.”

Norcini has been a leading proponent of the view that gold shares have been the victim of a massive play by an unidentified hedge fund that has gone long gold and shorted gold stocks. He and other gold bugs suspect this accounted for the stocks’ dismal performance relative to the metal earlier this year.

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Posted by admin on Nov 7 2011. Filed under Gold stocks. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry