Happy Tuesday, GoldBuzzers!

The response to last week's gold-silver ratio piece was some of the best ever for a Take Action Tuesday feature, and a number of you asked for the same follow-up analysis about the miners. So, I’ve spent the past week running the numbers. The test failed almost straight away, and the reason it failed might change how you think about owning mining stocks.

Ok. Let’s get into it. ⬇️

Tomorrow afternoon the Fed wraps up its two-day meeting, and markets have all but made up their minds: the odds of a rate hike now sit around 90 percent, up from two-thirds before Friday's inflation report. That's what knocked the metals down to start the week.

Gold slipped below $4,300 an ounce on Monday, its lowest in more than a month after three straight weekly declines, while silver skidded to the $63 mark. Core consumer prices rose at their fastest pace in four months in August, a touch above forecasts, and a firmer dollar plus the ten-year Treasury yield topping five percent for the first time since 2023 piled on.

Oil isn't helping either - Saudi Arabia shut its East-West pipeline after drone attacks, cutting off the main route around the Strait of Hormuz and sending crude toward four-month highs, which only hardens the case for tighter policy.

With the Bank of Japan expected to hike on Friday too, the metals are caught between hot inflation, usually their friend, and rising real rates, which never are. The hike itself looks priced in - what moves gold and silver tomorrow is what the Fed signals about the next one.

Last Tuesday I examined the gold-silver ratio across 55 years of data and found it only speaks at the extremes. Several of you asked the obvious follow-up - whether the same test works on the mining stocks. I spent the last week finding out, and the short answer is no. The longer answer turned out to be worth more than the test itself.

The broken yardstick

Divide GDX, the big gold miners ETF, by the gold price and you get the miner ratio - the standard gauge of whether miners are cheap or dear against the metal they dig up. That number peaked at 0.056 in 2006. Today it sits around 0.022, less than half the old high. You've probably seen a version of this chart offered as proof that miners are historically cheap.

The trouble is that the ratio never goes back. It has spent 20 years stair-stepping lower through share dilution and cost inflation, and the 2006 level has never come back into range. A yardstick that shrinks every cycle can't tell you what cheap means. When I ran last week's bucket test on it, the output was an illusion: every high reading came from before 2012 and every low one from recent years, so the test was really just reading the calendar.

The difference is that whenever the gold-silver ratio gets stretched, it eventually snaps back to familiar territory, which is what made last week's extremes meaningful. However, my research confirmed that the miner ratio never snaps back; each cycle just settles lower than the last.

And that downtrend is itself the finding. The ratio stair-steps lower because the average gold miner steadily loses value against the metal it digs up. Measured against its own recent history instead of its distant past, the base rate is blunt: whatever the ratio's level or direction, the median 12-month outcome for the GDX basket trails gold. If that were the whole story, you'd only ever own physical metal and and skip the mining shares.

But it isn't the whole story, because the lag is the price of admission to something else.

If you sort every 12-month window by what gold itself did in that same window, then the picture flips.

When gold fell more than ten percent, the miners lagged in every single window, by a median 22 points. When gold went sideways, they still lagged. But when gold rose between ten and 50 percent, the basket edged ahead about six times in ten. And in windows where gold gained more than 50 percent, the miners returned a median 130 percent, beating the metal by 68 points with a 90 percent hit rate.

Be clear about what this is: a same-window measurement, not a forecast. I checked the forecasting version too, and it fails - once gold has already run for six months, miners showed no forward edge at all. The excess is earned during the metal's move, never by chasing it afterwards. That's the true shape of the asset: a leveraged claim on gold that charges a toll in ordinary years and pays out in extraordinary ones, provided you're aboard before the year turns extraordinary. The five biggest payout windows in the record began in 2008, 2015 and 2016, then again in 2024 and 2025. If you've held miners through the past two years, you've lived through two of the five great episodes of the era.

Silver miners follow the same script with two twists. They respond to more modest moves - silver rallies of ten to 50 percent saw SIL beat the metal by eight to 11 points, roughly two times in three. And in silver's wildest runs, the metal outruns its own miners; anyone who watched January's spike knows the feeling.

One predictive signal also survives testing. When SIL/silver sat stretched cheap against its three-year norm while silver was rising, the miners went on to beat the metal 60 percent of the time. That signal hit its deepest extreme in January 2016, and SIL rose 247 percent over the next seven months.

Today both miner ratios sit stretched rich against their three-year norms - the silver miner ratio touched four standard deviations last September, and both hover near two and a half now. Historically, stretches like this have preceded the metal beating the miners, though the honest caveat is that the sample of such readings is small. The message isn't that the party is over, but that the easy relative gains have been made - and whenever the next great episode comes, its excess will be earned during the metal's run, not by jumping in after it.

None of that argues against miners; but it argues against owning them passively over years. The basket of miners lags the metal because it averages a sector where the gap between the best and worst companies is enormous, and because the payoffs arrive in bursts. The ratios can't pick the companies or time the entries. What they confirm is the bigger question: miners are a sector you trade, not one you buy and hold forever.

That’s all for this Tuesday, folks. I’ll see you on Thursday.

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Rick Adams
Founder, GoldBuzz
rick@goldbuzz.com