One of the most frustrating parts for many gold bulls during the run up in gold was the bear market-like nature the underlying mining stocks. Intuitively, a rise in the metal should help the share price of underlying gold stocks. One of the key factors in understanding how many mining companies' share prices went down despite mining having reserves to a rising commodity is knowing that the price of the costs to mine for gold was increasing at an even faster rate. One of the best gauges to assess this is the gold:oil ratio. At the beginning of the year, this ratio sat at approximately 10:1, meaning the price of an ounce of gold was ten times the price of a barrel of crude oil. The ratio fell to as low as 6.4, levels not touched since 2005. With the ratio at 7.18, if the gold:oil ratio can rally higher again, being that the ten-year average is about 12.1, or nearly double that of the recent low, a nice pop in gold stocks could ensue.
WEEKLY ANALYSIS STILL NEGATIVE
The Dow closed just a bit lower last week but the downward trading channel is still intact. The negative divergence in the weekly RSI helped identify the Oct. 2007 top and the divergence is still intact. There is key weekly support at 11,200-290 with resistance at 11,850-12,000, then at 12,250.