Rising interest in gold is coming at a surprising time. With the Greek problem in the news and with talk of a crippling euro and thus a stronger dollar, gold should be weakening (the stronger dollar would ordinarily be placing pressure on gold). If so, why is GDXJ picking up in relative strength? Is something else going on that we don’t know about?
– Richard Russell
Richard Russell makes some good points and asks some good questions in this short piece. Gold has been in a bull market almost since the turn of the century — up over 300%. And yet — except occasionally like when gold made an all time high and when it went over $1,000 an ounce — it has been ignored by the financial media and the public at large. I can’t think of a better indication that the gold market isn’t even approaching the end of its move, because when we get closer to the end it will be rising vertically and the public will be rushing to get in. In other words, it will have characteristics of a bubble.
He also makes the point that in the old days (If you’re not familiar with Richard Russell, he’s been a top investment newsletter writer for something like 60 years) you knew when a bull market for stocks was approaching the end because low priced stocks would double or triple within a year or two.
He equates the new junior mining stocks ETF (GDXJ) with low priced stocks from years passed. Here is what GDXJ has been doing lately in relation to gold (GLD) and the big mining stock ETF (GDX):
GLD (green line) is up 3.85% since the beginning of March. GDX (blue line) is up 10.91%. But GDXJ (red line) is up a whopping 17.04%.
So Russell asks the question, “… why is GDXJ picking up in relative strength? Is something else going on that we don’t know about?” I think he’s wondering if this is the time that the junior mining stocks will be doubling, tripling, and more withing a short period of time.
Of course, we don’t know the answer to that. But what we do know is that when it does happen exactly what we’re seeing right now will occur — the small mining stocks will begin to outpace the big miners and gold itself in terms of relative strength.
And, by the way, Russell doesn’t even mention silver. You talk about ignored. I can’t think of a bull market that’s been ignored as much as silver. Look what silver has done in relation to gold since the beginning of March:
Silver (red line) has tripled the performance of GLD (green line) during the last six weeks. And just remember, from 1978 to the beginning of 1980 (the end of the last great bull market in precious metals) gold went from about $180 an ounce to $850 an ounce — up over 370%. But silver went from about $5 an ounce to $50 an ounce — up 900%.
Food for thought.
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