A Lag in Gold

Compared to the S&P 500, the gold sector is the cheapest it has been in over 20 years.

Take a look at this long-term ratio chart comparing the Gold Bugs Index (HUI) to the S&P 500…

When this chart is moving higher, it means that gold stocks are outperforming the S&P. When the chart is moving lower, gold stocks are lagging.

Gold stocks have been lagging the broad stock market for most of the past 13 years. Last week, this ratio chart hit its lowest point in two decades.

In other words, gold stocks are cheap.

Of course, that doesn’t mean the gold sector can’t get even cheaper. But, for folks looking for value in an over-heated stock market and for folks employing a “reversion to the mean” trading strategy, this is a high-probability setup.

An Excellent Trading Vehicle

Yes… it’s hard to be bullish on a sector that has been such a miserable performer. HUI is down more than 10% since the start of the year. Heck, it’s down 5% since the start of 2023. Meanwhile, the S&P 500 is up nearly 6% for 2024 and up 32% since the start of 2023.

But keep in mind… even though the gold sector has been a horrible investment, it has been an excellent trading vehicle. In my Jeff Clark Trader service, we made 12 trades in the gold sector over the past year. We profited on 10 of them – including a 137% gain in eight days on a call option trade in December.

We made most of those trades when the gold sector was in an extended, oversold condition – when the proverbial rubber band was stretched far to the downside. And we simply bet on a “snap-back” rally.

Gold stocks are in a similar condition today.

So, as we head into March – which is a seasonally bullish time of the year for the gold sector – I like the setup for at least a short-term rally in gold stocks and perhaps something even more dramatic.

Best regards & good trading,

Jeff Clark
Editor, Market Minute