Whither Gold Stocks?

February 16, 2009 | By: Hard Assets Investor

If you've been looking for bright spots in this dark equity landscape – and who hasn't? – you probably noticed a certain golden glint on the horizon.

Gold, measured by the share value of the SPDR Gold Shares Trust (NYSE Arca: GLD), is up 7.7% this year. The gold mining shares that comprise the Market Vectors Gold Miners ETF (NYSE Arca: GDX) have chalked up the same year-to-date gain.

Despite the numbers, the two exchange-traded products are hardly performance twins. Until recently, in fact, GLD flagged behind GDX.

That started in late October after the GLD/GDX ratio peaked at 4.4; that is, when GLD shares traded for more than four times the value of GDX. From there, mining shares started to shine as bullion stalled and stuttered. The ratio consequently fell as the relative value of the miners increased.

Now, with the ratio stalled at the 2.6 level over the past 15 trading sessions, people are starting to wonder "Whither gold stocks?"

Bullion Vs. Mining Stocks: GDL/GDX Ratio

GDX sold off hard from the $52 level back in July, taking just three months to scrape a bottom under $16. The ETF's been battling back since October and has now reclaimed half the ground lost in the fall. That puts an interim (month's end) target of $38 in view.

Market Vectors Gold Miners ETF (GDX)

Failing to close convincingly above the $38 level within the next couple of weeks turns the question of "whither" into "whether." At the very least, it portends more shoring-up work for mining bulls.

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