Four weeks ago we alerted readers that the XAU (gold & silver miner) to S&P 500 (US stock market) ratio, standing at 0.02, was the lowest it had ever been in modern history, with data dating back through the 1970’s. In our view, the valuation had become too extreme, and as ratios between real asset classes cannot go to zero, it was time to start looking to position for a reversion to historic norms. Additionally, our technical analysis revealed a pending break of a multi-year primary downtrend channel, as shown by the royal blue color above.
Updating our chart below we can see that the breakout in the mining sector has materialized, as the ratio has broken through the multi-year downtrend and fully cleared the 6-month resistance level at 0.029. This break higher has closed the month at 0.033, a full 65% higher in four weeks. Such would represent an annualized gain of 780%!