Gold Miners ETF Could Double If Gold/GDX Ratio Continues To Decline

August 26, 2013

The gold/GDX ratio suggests miners may have fallen too much relative to gold.

 

Gold/GDX Ratio

The ratio of the price of gold to the price of the Market Vectors Gold Miners ETF (NYSE Arca: GDX) peaked at a record above 55 in June, before quickly falling to last trade near 46. As a group, gold miners have consistently underperformed the yellow metal since about 2007.

Lower gold prices may force mining companies to cut costs and streamline their operations, leading to better results. A reversion to a gold/GDX ratio of 23—seen as recently as 2011—could lead to a doubling in the ETF, just based on current gold prices.

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