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To the delight of gold investors, gold and gold shares seem to tackle their next leg up. It is sometimes argued that bull market uplegs are preceded by a period in which gold stocks are leading gold. There are several methods to investigate the relationship between gold stocks and gold. A simple approach is to look at the correlation between daily changes in the gold price and daily changes in the HUI (see the below figure).
The two recent uplegs (starting in spring 2003 and winter 2005/06, respectively) were both heralded by a significant fall of the correlation between gold and the HUI, meaning that the HUI was decoupling from gold. Starting in July 2007, the correlation has again been falling over a cliff and is currently almost at the lows observed during the start of the two preceding uplegs. There is thus a certain probability that gold investors will finally be rewarded for their angst and patience during the past 14 months of consolidation.
Source: www.economicreason.com
The two recent uplegs (starting in spring 2003 and winter 2005/06, respectively) were both heralded by a significant fall of the correlation between gold and the HUI, meaning that the HUI was decoupling from gold. Starting in July 2007, the correlation has again been falling over a cliff and is currently almost at the lows observed during the start of the two preceding uplegs. There is thus a certain probability that gold investors will finally be rewarded for their angst and patience during the past 14 months of consolidation.
Source: www.economicreason.com
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