Precious metals investors are wondering why most recently gold and silver prices have been going up but precious metals stocks have been going down.
I wonder too and my short explanation is simple: PM stocks went up too quickly and too far, compared to gold / silver prices. So now is the time for correction.
However, this explanation does not explain anything and I have to be more specific about that problem. Let me show something:
The upper panel of the chart shows the price action of GDX. The lower panel shows the so-called PM stocks indicator. It is an indicator that measures a correlation between gold prices and GDX.
The formula is a little bit complicated (but not too much). What is more, I am testing the efficiency of this indicator now. It means that I am not convinced about this indicator (it is too early to follow it).
However, the first results are promising. Generally, you have to look at the indicator and GDX. Normally, they should go in tandem. If not, the red flag is waving.
In the beginning of February the indicator made a new high while GDX did not (look at the arrows A and B). Now we see the result - GDX corrected strongly.
What now? I do not know (the test is still ongoing) but if I spot any divergence I will let you know...