The Phaserl


Why Gold Stocks are Leading Gold

By Jordan Roy-Byrne, Gold Seek:

At the start of the year we asserted that the mining equities could lead the metals higher. Since then, the shares have roared higher while the metals have remained subdued. Gold has gained a bit but Silver has really struggled. Why are the stocks performing so well if the metals are not confirming?

The main reason is the stocks led the metals down (specifically Gold) during the bear market. The chart below plots CDNX (Canadian juniors), GDXJ (US juniors), GDX (large caps) and Gold. Note that both junior markets peaked months before Gold. GDX technically peaked at the same time but began its topping process in December 2010, well before Gold peaked.

The stocks essentially began to underperform in December 2010 and then peaked a few months later. Most companies peaked even before Gold went parabolic! As a result, most mining stocks have been in a bear market longer than Gold and may have already discounted the worst. It makes sense that they would bottom first and there is a precedent for that scenario.

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