How Cheap will Gold Miners Become?

Source: ShortSideofLong

Chart Of The Day 1: Gold mining companies are trading more than 30% below 200 MA

Gold Miners vs 200 MASource: Short Side Of Long

 

The current bear market in Precious Metals companies is one of the worst ever in sectors history. Prices have declined so much, that we have now returned all the way back to the bottom in early 2000. If one was to ask Gold bulls whether such an event was possible only a few years ago, they would have laughed at you. Miners were seen as very cheap in 2012, 2013, 2014 and also in 2015. Eventually, they will become so cheap, that a bottom will be formed.

Let us investigate the price. Technically, gold and silver mining companies are approaching a major support of $41 in the Philadelphia Gold and Silver (NYSE: GDX) index. As already explained, this buying zone dates all the way back to the last major bottom.

Furthermore, the index is extremely oversold on technical basis. Consider that the price of the sector is now over 30% below its 200 day moving average. Such an even only happened only 3 other times in the last two decades. Moreover, on the quarterly performance basis, the price of the index has sold off by 40%. This is a 2 standard deviation event.

Finally, while the sector is oversold nominally, it is underperforming Gold in a disastrous way. Let me remind the readers of the blog that Gold (NYSE: GLD) is still trading around $1,100 per ounce. If we look at the chart below, we can literally see that miners are losing value in a raid fashion on relative basis. In other words, the ratio between Gold and Gold miners is going parabolic.

 

Chart Of The Day 2: The ratio between Gold and Gold miners has entered a terminal stage

Gold vs Gold MinersSource: Short Side Of Long