The long-awaited gold stock rally has finally kicked into gear.
Some folks will argue that it took the outbreak of World War III to wake up the gold sector from a multi-year slumber.
But, as we’ve noted many times in Market Minute over the past several months… the gold stocks were cheap enough, and investor sentiment (a contrary indicator) was bearish enough, that there was little risk and plenty of reward to buying into the sector.
And here we are… just two months into 2022 and the Gold Bugs Index (HUI) is up 8.36% while the S&P 500 is down 8%.
In other words, the gold stocks are beating the S&P 500 by more than 16% over just the past two months.
This is just the beginning…
After a few years of underperforming the broad stock market, gold stocks look set for a sustainable period of outperformance.
Take a look at this long-term ratio chart of gold stocks versus the S&P 500…
This chart compares the price action in the gold stocks to the action in the broad stock market.
When the chart is falling, gold stocks are underperforming the market. When the chart is rising, the gold sector is outperforming.
For the past ten years, gold stocks have provided a spectacular example of underperformance. This chart entered 2022 near its lowest point in 20 years.
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Over the past two decades, this chart has ranged between 0.05 on the downside and 0.55 on the upside. A rally back up to the middle part of that range seems like a reasonable objective.
So, either the gold sector is set up for a massive rally, or the broad stock market is set up for a massive decline… or we’ll get some combination of the two.
But, no matter how we get there, the gold sector is just beginning a long-term period of outperformance.
And, as we’ve argued numerous times over the past few months, traders should take advantage of any weakness in the gold stocks and use it as a chance to buy.
Best regards and good trading,
Jeff Clark
Reader Mailbag
How well have you done trading gold recently?
Let us know your thoughts – and any questions you have – feedback@jeffclarktrader.com.