Gold stock leverage to the price of gold, a story given up upon years ago, is back (and how)
The HUI/Gold (GLD) ratio is climbing, and it is starting become normalized to gold bugs.
What’s more, if the macro remains conducive, the HUI/Gold ratio would have much further upside.
By “conducive”, I don’t mean bullish price action. I mean conducive for the real reasons NFTRH anticipated gold stock leverage to the price of gold in the current phase. That reason is a disinflationary macro with gold outperforming cyclical assets that benefit from cyclical inflation phases. *
Our two favorite internal indicators to gold stock leverage are gold’s ratio to mining cost input, Crude Oil, and macro psych consideration, the S&P 500 (and the broad stock markets).
Gold has been bulling all year (interrupted by an overbought consolidation in the spring) vs. oil and has recently resumed upward vs. stocks, as expected after a hard consolidation of the spring upside. That’s positive operational and psychological leverage, folks.
But this is not news to us. NFTRH was on alert for a change in macro character with respect to gold and stocks as far back as August, 2024 as Gold/SPX bottomed, based and prepared to turn up. Against oil? The Gold/Oil ratio bottomed in 2022 and turned up beyond all doubt in 2024.
So what we have above is the gold price rising in relation to a market that directly informs gold mining cost structures and also in relation to a market that directly informs investors’ (psych) views toward gold stocks relative to other sectors.
Referring to the second chart above, it was clear as day why so many gold bugs used to utter “gold stocks suck” so often. Why? Because they did. They sucked.
Many bugs wondered where that fabled gold stock leverage had gone. It was actually still there, but in gold’s under-performance, especially vs. stocks, that leverage was negative.
Today, with the chart directly above clearly showing gold’s relative strength, it’s the opposite and has been the opposite since last year. That is why after many years of not being able to do so, we noted that the elements were coming in place for positive gold stock leverage.
People often over-complicate situations like this. They pull out charts and issue warnings or titillating bull theses. But it really all comes down to the internals. All that other stuff follows the internal structure of the macro.
Corrections will come (it seems like I’ve been writing that for many weeks), but as long as these internals hold up, they will be buying opportunities in a new macro phase. Gold is trending up vs. the signature U.S. asset market. What’s more, it’s got a long way to go. So too should the miners, over time.
* “Cyclical inflation” as used here means inflationary policy that is working toward economic growth, however temporarily.
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