Put Gold Miners on Your Radar Screen

By: Prieur du Plessis | Wed, Apr 14, 2010
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Ever since I started my investment career as a mining analyst in 1984, I have taken a keen interest in gold stocks. In particular, I always keep a close eye on the relative strength of the miners versus the metal as stocks often lead bullion.

The chart below has been constructed by dividing the MarketVectors Gold Miners ETF (GDX) by the streetTRACKS Gold Trust (GLD). A rising trendline indicates outperformance by gold stocks against bullion, whereas a declining line shows the metal having the upper hand. After a period of underperformance until October 2008, the miners outperformed bullion for about 12 months before drifting lower until January this year. The curve for mining stocks then turned upwards and led the metal higher.

GDX:GLD
Source: StockCharts.com

In addition to the nascent outperformance by gold stocks, the Gold Miners Bullish Percent Index shows more than 60% of the 32 stocks in the Gold Miners Index are now in point and figure uptrends. John Murphy (Stockcharts.com) explains: "The sentiment indicator is used like all bullish percent indices. Readings over 70 are overbought while drops below 30 are oversold. The last two times that oversold condition existed were the end of 2008 and during the first quarter of 2010. The late 2008 upturn signaled a major rally in gold shares. The latest upturn this year appears to be signaling an upturn in gold and silver shares as well. While the BPGDM is no longer oversold, it's generally a positive sign for a group when more than half of its stocks are in new uptrends."

Gold Miners Bullish Percent Index
Source: StockCharts.com

I remain bullish on gold bullion and gold miners (GDX and its younger brother GDXJ), but repeat my usual advice that the yellow metal and gold-related instruments should only be bought at times of pullbacks.

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Prieur du Plessis

Author: Prieur du Plessis

Dr Prieur du Plessis
investmentpostcards.com

Dr Prieur du Plessis

With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.

He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).

Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.

Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.

Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.

In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).

Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.

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