Gold’s up $300 this year.
Gold stocks are tearing it up.
For those of you who saw how cheap gold stocks were five months ago, you know how epic this move has been.
Has it been too much though?
Here’s the simple way to know if it is.
Is It Too Late To Buy Gold?
If you’ve bought gold stocks this year, I bet every feeling you have should be to take some profits.
However, as successful investors, you know to disregard all your feelings.
No one cares. Especially the market.
And over the long run your feelings are going to cost you far more than they make you.
The data should be your guide.
Today, after the stellar run in gold stocks, the data on gold stocks is still very revealing about where gold stocks are in the cycle.
The absolute best indicator of gold stocks value is their price relative to gold stocks.
Historically, gold and gold stocks move in tandem. When gold is down, gold stocks are down. And vice versa..
At highs and lows, the relationship between them is even more magnified. When gold is at the end of a multi-year bear market, gold stocks are down massively. And vice versa too.
Earlier this year, gold ended a nearly five year bear market and gold stock prices reflected the extreme low.
The chart below shows the HUI Gold Index (a basket of gold stocks) relative to the price of gold.
When this ratio is low, gold stocks are cheap. When it’s high, gold stocks are expensive.
After the big rebound in gold stocks, the ratio is still historically low:
If you look closely, you can see the uptick in gold and gold stocks.
Gold prices are up, gold stocks are faster.
The result is an increase in the relative price of gold to gold stocks of from 0.10 to about 0.19 today.
Historical highs for this ratio are more than three times higher.
The data leads us to believe gold stocks are still cheap relative to gold.
Therefore, if gold does well (and conditions are ideal for gold), gold stocks still have plenty of room to run.