Jul 122014
 

By Myra P. Saefong, MarketWatch


Bloomberg

SAN FRANCISCO (MarketWatch)—The outperformance of gold-mining stocks over gold this year points to some price gains ahead for the metal, but don’t expect a big rally.

A little over halfway into the year, mining stocks have recouped roughly half of what they lost in 2013 and scored about double the %age gains seen in gold prices.

Gold-mining stocks “generally lead gold, both in the direction of the moves and in the extent of those moves,” said Brien Lundin, editor of Gold Newsletter.

/quotes/zigman/6015494/realtime HUI 233.79, -7.18, -2.98%

The NYSE Arca Gold Bugs Index /quotes/zigman/6015494/realtime XX:HUI -2.98%  has climbed about 22% year to date, after losing 56% last year, while the Philadelphia Gold and Silver Index /quotes/zigman/1475600/delayed XAU -2.91%  has gained 21% this year following a loss of 49% in 2013.

The performances for the indexes strongly outdo the 11% year-to-date climb for Gold futures (Buy here) prices /quotes/zigman/11829489/delayed GCQ4 -0.86% , which lost 28% last year.

“The gold stocks typically begin rising or falling in advance of the metal, thereby foreshadowing the trend,” Lundin said, adding that “they move further on a %age basis than the underlying metal, thereby offering leverage.”

So “the fact that the gold stocks are outperforming gold so far this year is a very bullish indicator for gold itself,” he said.

Bottom in place

Already, the gold market may have marked an end to the “summer doldrums,” a period in which the sector experiences a slow buying period—and prices may have bottomed.

Gold and gold-stock markets usually bottom sometime between the middle of July and the middle of August, said Lundin, but this year, it seems they bottomed much earlier—in early June and are now climbing slowly higher.

/quotes/zigman/11829489/delayed GCQ4 1,295.50, -11.20, -0.86%

Prices slipped below $1,250 in early June and have gained more than $80 an ounce since then.

“Fundamentals, technicals and market sentiment are now lined up for a powerful advance,” said Ken Ford, founding partner at Warwick Valley Financial Advisors.

He expects the Federal Reserve and other central banks to “be behind the curve” with regard to raising rates and expects to see a pickup in inflation expectations moving forward.

Once gold clears $1,400 an ounce, the “basing pattern” for prices, following the major bottom they formed over the past year, will be complete and gold will “resume its secular bull trend,” Ford said.

/quotes/zigman/6015494/realtime

XX : NYSE Glb Ind

233.79

-7.18 -2.98%

Volume: 0.00

July 15, 2014 4:07p

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/quotes/zigman/1475600/delayed

US : PHLX Ind Cur

98.41

-2.95 -2.91%

Volume: 0.00

July 15, 2014 3:52p

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/quotes/zigman/11829489/delayed

US : U.S.: Comex

$ 1,295.50

-11.20 -0.86%

Volume: 166,293

July 15, 2014 3:57p

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