Jun

4

A friend told me recently that gold mining stocks had been declining much more sharply than the price of gold. He therefore thought the stocks were undervalued.

Attached is a graph of the ratio of GDX (the gold mining ETF) to GLD (the physical gold ETF) with a 50-day moving average and Bollinger bands.

Here are the changes in the ratio in the next 50 days after the ratio of GDX to GLD fell below the lower Bollinger band. There have been only 15 non-overlapping occurrences since both ETFs began trading.

Next 50 days
             GDX      GLD  GDX/GLD   Ratio     GDX     GLD
Date      Adj Close Adj Clos   Ratio  change  change  change
1/18/2007    35.92    62.26  0.5769    1.4%    7.0%    5.6%
8/15/2007    35.42    66.13  0.5356   13.2%   30.2%   15.0%
11/19/2007   44.16    77.24  0.5717   -4.9%   10.0%   15.7%
 2/6/2008    46.34    88.95  0.5210    3.2%    5.1%    1.9%
4/24/2008    43.78    87.22  0.5019   -0.2%    4.4%    4.6%
7/24/2008    43.48    91.33  0.4761  -27.0%  -34.0%   -9.6%
10/3/2008    28.70    82.59  0.3475    4.4%    4.5%    0.0%
 3/2/2009    30.72    90.93  0.3378   25.6%   25.3%   -0.3%
1/21/2010    43.33   107.37  0.4036    3.8%    7.2%    3.3%
10/19/2010   54.01   130.11  0.4151    6.7%   12.4%    5.3%
 1/6/2011    56.58   133.83  0.4228   -1.7%    2.2%    4.0%
 5/2/2011    59.95   150.41  0.3986   -3.8%   -1.4%    2.5%
 8/5/2011    55.26   161.75  0.3416    1.6%    2.1%    0.5%
12/19/2011   51.02   154.87  0.3294    0.0%    7.4%    7.4%
3/14/2012    50.12   159.57  0.3141   -6.2%  -11.0%   -5.1%

Avg                                     1.1%    4.8%    3.4%
Std. dev                               11.1%   14.6%    6.5%
N                                         15      15      15
t                                       0.38    1.05    0.24


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