gold stocks ready to ignite?, page-8

The gold/gold stocks ratio goes up when gold is outperforming the miners and vice versa. Since the market bottom in 2009, the ratio (US$ to HUI)has moved in a channel 2.40 to 2.87 (see prev ref.)It has now broken up out of the channel and stands at 3.01.

Implication for P/NAV trend
A good indicator for senior gold-producing companies is the ratio of gold stock price with the net asset value of their gold reserves, which factors in the current best estimates of production cost per ounce, etc.

These shares traded for much of the last decade at a market value premium of about 1.3 to 1.5 times their NAV. Recently the ratio has been less than one.

The breakout of the US gold/gold stocks ratio suggests a return towards the previous trading premim range of 1.3 to 1.5 times NAV. At constant NAV this implies a 30%- 50% increase in P.

Hopefully Aust gold stocks will show a similar trend.