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Gold And Silver Stocks Outperforming Metals ETFs

08/18/10 08:18:12 AM
by Donald W. Pendergast, Jr.

Gold prices are about 28% higher than they were one year ago, but even that rise pales in comparison with the gains made by many precious metal mining stocks.

Security:   AZK, BVN, NEM, SLW
Position:   N/A

Market Vectors Gold Miners (GDX), the exchange traded fund (ETF) that tracks the price of the major precious metals mining shares, is up about 32% over the past 52 weeks, slightly outperforming the price of gold itself, but if we dig a little deeper, we can use a simple relative strength ranking system to mine for the highest performance miners, shares of which have far outpaced the price of gold or the various gold ETFs. Here's a way to put this ranking system to use in your own gold stock portfolio.

Graphic provided by: MetaStock.
In Figure 1, witness the output of a simple MetaStock exploration that ranks any given group of stocks or ETFs according to a weighted rank of their combined three-, six-, and 12-month performances. The ranking system puts more weight on the most recent three-month performance to ensure that the output has immediate value. As we look at the middle of the list, we see that both of the main metals ETFs (GLD and SLV) are significantly underperforming GDX, the best available ETF proxy for the .HUI (the famed Gold Bugs index of major PM mining shares). That's valuable information, but can we get even more specific, perhaps locating the PM stocks that are currently leaving GDX in a cloud of (gold) dust?

Graphic provided by: MetaStock.
Indeed we can. In Figure 2, we see that there are a great many stocks (big established gold/silver producers, as well as smaller, more speculative exploration issues )that have been easily exceeding the three-, six-, and 12-month performances of GDX. I have highlighted the ones of most significance, as these stocks all have excellent liquidity and all trade above $15 per share. Lihr Gold (LIHR), Silver Wheaton (SLW), Eldorado Gold (EGO), and Iamgold (IAG) are the real movers in the established PM stock group, while Almaden Minerals (AAU), Nevsun Resources (NSU), Aurizon Mines (AZK), and Tanzanian Royalty Exploration (TRE) are the more speculative low-priced issues that have been on a tear over the past 12 months.

The precious metals market is one of the most volatile, and if you have a proven system to help time your buys and sells in PM stocks using some sort of a comparative relative strength ranking method to locate the strongest (weakest) performers, you'll be able to focus your energies on the stocks most likely to keep on moving up -- or down. Most charting packages offer a means to rank stocks according to various technical and fundamental criteria, so make sure you take advantage of these important tools along with your relative strength rankings. Used wisely, these tools should help improve your stock/ETF trading performance to a noticeable degree.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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