A majority of gold miners are in a bear market

Key points:

• The percentage of gold miners in a bear market cycled from less than 20% to greater than 50%
• Similar reversals led to negative returns for miners over the next one to three months
• While the impact on gold futures was limited, the situation differs significantly when it comes to silver

A growing number of gold miners are returning to a bear market

With an inverted yield, soft economic conditions, and a weak dollar, one could reasonably assume that gold and gold miners would flourish. However, the most crucial factor at present is the likelihood of interest rates remaining elevated for an extended period. In such a scenario, gold and gold miners could face challenges, which may be the message conveyed by Mr. Market at the moment.

This week, the percentage of gold miners in a bear market surged above 50%, signaling a deteriorating price trend backdrop for the industry.

Let's assess the outlook for miners and gold futures when the percentage of gold miners in a bear market cycles from < 20% to > 50%, like now.

Similar shifts in the percentage of miners in a bear market preceded negative returns

The gold mining industry tends to encounter difficulties over a medium-term horizon when the percentage of miners in a bear market shifts from less than 20% to over 50%. The signal showed a loss at some point over the next three months in 24 out of 25 precedents. 

Even during the last major gold bull market between 2000 and 2007, the miners consistently experienced downturns over the subsequent two months.

What about Gold and Silver?

The reversal in the percentage of gold mining stocks in a bear market does not foreshadow an unfriendly environment for gold futures. Still, the outlook is not exactly inspiring. 

Silver, the higher beta precious metal, exhibits a stronger correlation with mining stocks. Returns and win rates were consistently unfavorable over a more extended period.

What the research tells us...

Gold miners witnessed a resurgence in conjunction with the overall market after bottoming last fall. However, the sustainability of their uptrend is now in doubt, given that most stocks have returned to a bear market status. The shift in price trends suggests gold mining stocks may struggle in the next one to three months. Interestingly, while the challenges endured by miners haven't substantially impacted gold futures, the same cannot be said for silver.