HOUSTON – With so much angst about Europe and fears of capital flight from southern European banks reportedly accelerating, threatening to turn into a disorderly bank run, it is no surprise that safe harbor seeking wealth is trying to find a home anywhere but where it is leaving. Some of that wealth is finding its way into gold, finally. We saw a good hint of that in Friday’s $64 pop higher for gold.
Interestingly, for the first time since arguably 2009 we seem to be seeing the large, well capitalized mining stocks outperforming gold metal. As BMO’s Don Coxe mentioned in a recent King World News interview, the fact that mining shares are outperforming gold is a strong sign that this current upward reversal underway for gold is “real.” Coxe reasons that when gold is set to rally capital flows into the miners because people seek exposure to their “unhedged reserves of gold in the ground.” Buying the miners, he posits, is a way to get leveraged exposure to more gold for the same money – more exposure than gold ETFs, for example.
After mining shares have been so beaten up, the fact some of the best of the Big Miners pay dividends doesn’t hurt their cause.
Today, Monday, June 4, 2012, with gold off a little from its short covering style surge on Friday (-$8.20 or 0.5% to $1,613.90), we can point to a continuance of the mining share outperformance as the AMEX Gold Bugs Index or HUI actually advanced by 1.4%, up 6.39 to close at 450.89 in New York.
(HUI, 4 months, daily, with gold shown in orange.)
Gold down, Miners up – Not a Particularly Good Sign for Mining Share or Gold Bears
Perhaps even more importantly, today’s “green close” for the Big Miners occurred toward the end of the day after being weaker in the early going. Recall that one of the indications we look for to confirm positive money flow (more buying than selling pressure) into an issue or market is “early weakness, late strength.”
The reason for that is simple and straightforward. Larger players tend to do the bulk of their trading toward the end of the day. If Big Money is buying, we tend to see the issue or market stronger as we near the close and very often right up to the last trade. When we see consistent, consecutive days of that pattern it definitely adds to our confidence when long.
(HUI, 5-days, hourly.)
Today’s action in the HUI is a confirmation, but it was not alone. Gold showed a similar pattern, although not quite enough of it to finish the day in the green. Gold also began the day weaker, but did indeed firm toward the close as evidenced in the short term GLD chart below as a proxy for the yellow metal.
(SPDR Gold Shares or GLD, 5-days, hourly.)
This is not the kind of action we would expect to see if gold or the Big Miners were still in their bear modes.
Keep an eye on the late day trading just ahead. Help is on the way.