Mining-bullion relative strength as a gold-sleeve regime

The gold-sleeve sits in mining shares

Gold-oriented mutual funds typically concentrate assets in mining-company shares rather than bullion. For a gold-sleeve, the relevant intermarket context is therefore the valuation of those shares versus the metal.

The weekly mining-bullion-ratio

Each week a relative-strength reading is formed by dividing the latest gold-mining share index by the latest bullion price. That mining-bullion-ratio is the score attached to the sleeve.

A ratio at or below 1.45 was treated as slight undervaluation of mining shares versus bullion and marks the undervalued-band, with a deeper band at or below 1.20. A ratio at or above 1.91 was treated as slight overvaluation of mining shares versus bullion and marks the overvalued-band, with an extreme band at or above 2.15.

A 52-week analog board

Weekly ratio readings from the mid-1970s onward were binned and scored against the mining index 52 weeks later. Low bins were more often followed by higher index levels. High bins were more often followed by lower index levels.

Archive episodes

The evaluation lists three episodes since 1975 in which the ratio reached 1.20 or lower. In each case the mining index stood more than 100 percent higher 12 months later.

On 18 June 1982 the mining index at 344.46 and bullion at 308.75 produced a ratio of 1.12. By 14 January 1983 the index was 1050.78 and bullion was 483, for a ratio of 2.17, after which the mining index declined 31 percent over the next 52 weeks.

A January 1990 ratio of 2.25 preceded a mining-index peak of 1021.87 and a 38 percent decline to 660.33 by June 1992. A still-elevated 1.86 reading then preceded an additional 25 percent decline.

A mid-January 1993 ratio of 1.42 sat below the 1.45 line. The analog table associated more than 80 percent of sub-1.45 readings with a higher mining index one year later. After that print the index rose 45 percent in under three months while the ratio itself climbed to 2.02.

Stated limits

The same evaluation states that continued usefulness is not guaranteed and that the published bullish and bearish cutoff values are not uniquely privileged.