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Why aren't gold & silver miners also appreciating?

edited April 2011 in Fund Discussions
Gold and silver seem to be making fresh highs every day but the miners are flatlining or going down. Yesterday (Thurs) some silver miners were down as much as 8% while the price of silver keeps going up. Can anyone please explain why the gold & silver miners are going down while the price of gold & silver are soaring ever higher?

Thanks : )


  • Hi PopTart,

    They are different asset classes traded in different markets. Bullion is a commodity and traded on the commodity markets while stocks of companies that mine bullion are traded on one of the various stock exchanges.

    As such, while they mirror each other over the longer term, they can diverge tremendously in the short run for any number of reasons.

    For example, right now the stock markets are very touchy and looking as if they might correct. Many of the same factors having a negative impact on stocks, actually have a positive impact on bullion (e.g. fear of the deficit and devaluation of the currency).

    The metric used to measure the relationship between bullion and mining stocks is the gold/XAU ratio. The historic equilibrium is 4.0 with numbers higher than that being a sign that mining stocks are undervalued relative to bullion. Under 4.0 means that bullion is undervalued relative to mining stocks. The ratio has been running extremely high for most of this current bull market in precious metals. This means that in our portfolios, we should be overweighting mining stocks relative to bullion as eventually, there should be a reversion to the mean.



  • Thanks Rono. Excellent explanation, as always : )
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