The chart that says gold’s bull market is nowhere near finished

Every commodity bull market has a running order. The metal moves first. Then the big producers catch up, because a higher price turns into fatter profits almost immediately.

Then money works its way down to the smaller developers and explorers, and by the end of it, every company with a drill rig is adding “Gold” to its name.

That’s how bull cycles proceed, so where are we in this bull market?

Twenty years of miners losing to metal

The top panel of this first chart answers it. It divides the price of GDX, the big gold miners fund, by the gold price. When the line falls, miners are losing ground to the metal they dig up. When it rises, they’re catching up.

It’s been falling or flat for 20 years. In 2006 the ratio was 0.056. It’s 0.021 today, so miners have lost about 60 percent of their value relative to gold over two decades. For the past ten years the line has lived inside a box, between a floor set in early 2016 and a ceiling it touched in 2016 and again in 2020 without ever getting through.

This week it’s sitting on that ceiling. It nudged above it in September and has come back to test it. If the running order is right, this is the first rotation of the cycle, from metal into producers, and it hasn’t been confirmed yet.

Juniors haven’t even turned up

The bottom panel looks one step further down the chain, at GDXJ, the junior miners fund, divided by GDX. In a late-cycle market this line goes vertical, because the juniors are where investors go when they want to double their money rather than make 30 percent. In 2011, at the end of the last cycle, the ratio peaked at 2.36.

It’s 1.28 today, and it has been stuck between about 1.1 and 1.7 since 2015. The whole of gold’s run from $1,000 to over $5,000 happened without the juniors gaining an inch on the majors. Even this summer, when everything in the sector rose, GDXJ matched GDX almost to the percentage point. The speculative money that marks the end of these cycles hasn’t even shown up yet.

What the summer told us

This second chart zooms in. From the July lows to the August 25 peak, gold gained 17 percent. GDX gained 49 percent. That’s what you’d expect from miners in a rising market, because their costs stay roughly fixed while their selling price climbs.

The more interesting part is what happened in the pullback. By the October 7 low, gold had given back 80 percent of its summer rally. GDX had only given back 58 percent. The miners went up harder, and they came down softer. That’s showing relative strength, and it’s one of the things to look for when deciding whether a rotation is underway.

One honest caveat. Measure from the winter all-time highs instead, gold’s in January and GDX’s in February, and both are down almost exactly 23 percent. The miners’ edge is a summer-and-autumn story so far. That’s what “early signs” means, and it’s a reason to watch the ratio chart closely, rather than declare the job done.

Why miners move harder than gold

As I’ve mentioned before, the reason is simple arithmetic. The average gold miner spent about $1,785 to produce an ounce in the first quarter of this year, on World Gold Council figures. At $4,200 gold that’s a margin of roughly $2,400 an ounce. If gold rises 50 percent to $6,300 and costs stay put, the margin rises to $4,500, which is up close to 90 percent. A move in gold gets magnified on the way through a miner’s accounts, and that’s before the market pays a higher price for the shares to reflect it.

Costs don’t stay put, of course, and mining carries risks that bullion in a vault doesn’t. But the mechanism is why producers tend to outrun the metal once a cycle gets going, and why they haven’t yet in this one.

A top, or the top

Gold peaked at $5,420 in January and has spent most of this year working off that advance. It’s tempting to read that as the end of something. The ratio charts say otherwise. The first rotation of the cycle is only now testing the ceiling of a ten-year box, and the second hasn’t even started.

That fits the way I’ve described this year all along. The bull market that began with the March 2024 breakout is still in its consolidation phase, not its final act, and my standing forecast of gold above $10,000 hasn’t changed.

A correction can end a wave without ending the trend. These miners’ charts tells us which of those this is.