Here is a little snippet from NFTRH 213 that showed the important indicator of gold sector health, the HUI-Gold Ratio (HGR) from three different views; daily, weekly and monthly. As you can see, daily must hold to keep the weekly intact, which in turn must hold to keep the monthly big picture of the secular bull (for the HUI, not this sad looking ratio) intact.
This is a difficult sector to own and indeed these charts say it is best to trade the stocks regardless of what one does or does not do with the bullion. But the conclusion is that until the HGR breaks down to a lower low, the current situation is viewed as a buying opportunity. On the other hand, HGR will serve as a handy risk management indicator if it should unexpectedly collapse. From #213:
Daily HUI-Gold Ratio (HGR) needs to hold a higher low to both the May and July lows here or else the story is bearish…
That is because a new low here would threaten the higher low from Armageddon ’08, highlighted in yellow, per the chart directly below…
Which would in turn threaten 2008’s higher low to the one from the beginning of the bull market in 2000.
So you can see that it is kind of important that the daily HGR hold its parameter.
It is a simple conclusion; HGR must hold a higher low on the daily to avoid a threat to the July and May lows so that the weekly view can remain intact and not threaten the 2008 low and eventually, the secular low of 2000. Meanwhile, higher low status across all time frames means the indicator is not broken, despite the formerly “normal” correction that become somewhat intense last week.
By: Gary Tanashian
This is a very useful analysis, thanks! I expect to see the ratio generally continue to expand for a few more months, but if it doesn't it will be an important factor in causing me to alter my bullish stance toward gold mining shares. I appreciate the helpful article.