Review Of The Week - Plus A Look At The BGMI

The chart above plotting the price of gold and its COMEX open interest is worth watching. Again I’m NOT making a prediction, rather I’m reporting on a situation now developing in the gold market. And it’s exactly from a situation as we see above that gold could see a major and very significant breakout to higher levels.

I haven’t covered the Barron’s Gold Mining Index (BGMI) for a while, so let’s look at its Bear’s Eye View (BEV) chart below.

I’ve noted August 1971 in the chart. Why do I keep doing this? Because this was an important date in market history, a date when everything changed and nothing was ever the same again. This is THE BIG PICTURE VIEW of the market that I believe everyone should have in 2020.

Look at the 100-year history of the BGMI, before and after August 1971. The BGMI didn’t see a crash in valuations during the Great Depression. Actually during the 1930's the BGMI enjoyed a bull market advance that was greater than the one the Dow Jones saw during the 1920's. But from February to October 2008 (sub-prime mortgage crash) the gold miners crashed by 70% in the BEV chart below. Odd, very odd, the gold miners should see such a drastic decline during a growing panic in finance. Then like silver, the BGMI was trading at new all-time highs in less than two years from this 70% crash in its valuations.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #7   BGMI BEV 1920_20.gif

From 1920 to 1971 in the frequency distribution table below, the BGMI never saw a 70% crash in valuations. After 1971 14% of its weekly closings were actually below its BEV -70% line. This makes no sense as the growth in CinC was much greater after 1971 than before.

Now look at how often the BGMI saw a weekly close within 10% of its last all-time high: Rows 0% down to -5%. Before 1971 the BGMI saw 19.89% of its weekly closings at or within 10% of a new all-time high. After 1971 this number was reduced to 5.58% of its weekly closings.

Next is plotted the indexed values of the Dow Jones (Red Plot), the BGMI (Blue Plot) & Currency in Circulation (CinC Green Plot: paper dollars in circulation). Before 1970 the BGMI proved to be a much superior hedge against monetary inflation than was the Dow Jones. After 1995 investing in gold mining proved to be a mug’s game. Note too how the Dow Jones itself has failed to keep up with CinC inflation since 1966.  

At week’s close CinC has increased by a factor of 400, while the Dow Jones itself has increased by only a factor of 260. I can’t deny that in 2020 the Dow Jones has outperformed the BGMI by a wide margin. But from 1965 to 1996 the BGMI out performed both the Dow Jones and CinC.In an era of quantitative easings and zero to negative bond yields, why has gold mining performed so poorly?

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 638\Chart #8   BGMI DJIA & CinC.gif

So, why at week’s close has the BGMI increased by a factor of 63 since January 1920? I think of it this way; what we’ve been seeing for decades now is yet another one of those fingerprints left on the market by the “policy makers” as they impose their “policy” on the financial markets.

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