Why Miners Will Now Outperform Metals

Although gold and silver mining stocks have been soggy performers, there are many reasons to believe that is about to change in a significant way.

Over the past couple of months, I’ve received numerous messages from subscribers and seen many social media comments expressing frustration that gold and silver mining stocks have been under-performing the metals themselves, even though in theory they should provide leveraged exposure to metal prices. In today’s analysis, I’ll explain why this under-performance has occurred, and more importantly, why I believe that dynamic is about to change, with miners now set to outperform the metals from this point forward. To better understand this analysis, I recommend first reading my recent bullish thesis on precious metals mining stocks.

Let’s first get an overview of the situation that many investors have been lamenting, starting with the ratio of gold miners (using the GDX large-cap miners ETF) to the price of gold over the past six months.

As the chart below shows, from July to September, gold miners had a rare period of out-performance relative to gold, as the mining stock bull market started to heat up. But they began to stagnate relative to gold starting in October, until the past couple of weeks. As I will explain throughout this analysis, however, I believe gold miners are about to significantly outperform gold once again.

The situation has been even more pronounced in silver miners, as shown in the chart of the ratio of silver miners (using the SIL large-cap miners ETF) to the price of silver over the past six months. Although silver miners experienced a brief period of out-performance relative to silver from August to mid-September, they have since lagged behind, failing to provide the expected leverage to the metal’s price.

One comment I saw on X summed up the frustration: why invest in silver miners for leverage when you could simply use margin on a silver ETF like SLV or buy silver futures?

And I can’t say I blame the poor guy. However, I believe silver miners are about to enter an extended period of out-performance relative to silver once again, as I’ll argue throughout this analysis.

My explanation for the recent under-performance of gold and silver miners relative to the metals themselves is that they have been held back by a strong resistance level that formed at the mid-October peak. However, I believe that is about to change in a significant way following today’s breakout in all four of the popular mining stock ETFs that I track.

Let’s start with the VanEck Gold Miners ETF (GDX). As I’ve been highlighting in recent weeks, it had been trading in a range between support at $68 and resistance at $84. Today, it finally broke above that resistance on solid volume. While the volume could have been stronger, I believe that is likely to occur over the next few trading sessions. It’s important to remember that breakouts are often a process rather than a single binary event, and they typically unfold over several days as more buyers step in.