Small-Cap Gold Miners Repeating 2010 Rally

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“I see a lot of patterns in our behavior as a nation that parallel a lot of other historical processes.”
— Maynard James Keenan

With risk assets moving ever higher and more and more investors believing in the reflation theme I keep stressing in all of my writings, I wanted to provide yet another piece of confirming data to the idea that we could be up in a way similar to 2003 and 2009.

I did a segment on Bloomberg’s Chart Attack with Matt Miller addressing this. Across the board, market internals continue to suggest inflation expectations are rising, with gold participating in that. I continue to believe that while gold can go up in such an environment, the odds of outperformance in equities are likely higher given the overall level of bearishness still in stocks.


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The Market Vectors Gold Miners ETF (NYSE:GDX) is performing well, and the Market Vectors Junior Gold Miners (NYSE:GDXJ) really is rocketing higher. Take a look at the price ratio of GDXJ relative to GDX. As a reminder, a rising price ratio means the numerator (GDXJ) is outperforming (up more/down less) the denominator (GDX).

Think of GDXJ as the riskiest and most volatile segment of the gold mining industry. Given lower liquidity, higher big-ask spreads and smaller size, the Junior Miners ETF tends to perform in a more exaggerated way than larger miners such as Newmont Mining (NYSE:NEM).

I have annotated the chart to show the similarity of outperformance in the Junior Gold Miners ETF to the way it looked in the second half of 2010 as the QE2-induced rally began. If you remember that time period, there was a significant and consistent move higher in risk assets. The environment looks quite similar to that now, and Junior Gold Miners appears to be anticipating that such a move still is early.

The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized advice. The opinions herein are not personalized recommendations to buy, sell or hold securities.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing.

Michael A. Gayed is the Publisher of The Lead-Lag Report, and Portfolio Manager at Tidal Financial Group, an investment management company specializing in ETF-focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers.

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Article printed from InvestorPlace Media, https://investorplace.com/2012/02/small-cap-gold-miners-repeating-2010-qe2-rally-gdx-gdxj/.

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