Here’s a chart of the popular mining ETF, GDX, relative to the spot gold price:

Source: stockcharts.com

A long-term chart of XAU index to gold shows the lowest value in 20 years except for the panic low in 2008:

Source: stockcharts.com via http://oilandgas-investments.com

Since last summer, this ratio has been bouncing around in a range not seen since the depths of the last bear market in late 2008 to early 2009.

Our own gold producer index is still slightly lower than before that crash, when gold topped out at $1000.

As a result of high metal prices and strong cash flows, we are now showing 66 miners that are actually paying dividends, a rarity in this industry:

http://miningalmanac.com/stock-lists/dividend-mining-companies

It is very unusual for gold to trade higher than platinum, so when an inversion happens it can be an opportunity to put on gold shorts and platinum longs. In the “risk-off” trade of recent months, industrial metal platinum has lagged safe haven gold. At the last market bottom in early October, the ratio reached 1.125, when platinum was trading in the $1450 range and gold held around $1600. As stocks and risk assets have rallied since then, the ratio has come off a bit, but still remains high at 1.08 (Tues close):

Gold and silver haven’t made any progress for over a month now, and stocks in general have been in the doldrums, but precious metal producers have been earning money hand over fist, and their stocks have found some much-deserved traction.

From our index comparison page, here is a chart showing the outperfomance of gold producers (green) and silver producers (lavender) when compared to base metal producers (blue), which are more sensitive to economic downturns.

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Checking out the Solid Gold Miners list in Editors’ Picks, I see that even big miners like Newmont, Kinross, Newcrest, IAMGOLD, Centerra, Barrick and African Barrick are trading at 15x operating cash flow or less, even with their stocks way up. Going by 2011 cash flow, these figures are going to look even better, particularly for miners with a heavy silver component, as silver is much higher this year than last.

Just a quick post on this sunny Friday afternoon in August…

Check out this divergence over the last three months between our gold producers index and platinum group index, as the gold price has risen to meet platinum. If this spread returns to more normal levels through a rise in platinum, we could see that index catch up.

Tip: compare any group of our mining stock indices here.

Over the last 40 years, the ratio of the price of an ounce of gold to an ounce of platinum has risen from its typical range of 0.5 – 0.95 to exceed 1.0 a total of 11 times. Two of those times it spiked to over 1.2, and once to 1.4. The other 8 times, it receded within a few months.

Last week the ratio hit 1.0 for the first time since late 2008, then backed off a tad, and in today’s risk-off trade platinum is down and gold is up so that the ratio is again 1.0.  It makes sense for gold to be stronger than platinum when the markets are puking risk, since gold is more monetary and platinum is more industrial, but history says that the ratio will recede sooner or later.

Sentiment also suggests that gold is due for a pullback of some kind, since traders have been overwhelmingly bullish on the metal for the last month. Traders are of a more neutral opinion when it comes to platinum, so from a sentiment point of view you can make the case that gold needs to cool off in relation to platinum.

Here is a three-year chart of the daily closing ratio:

Source: stockcharts.com

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Here’s a long-term chart that is not up-to-date:

Source: Market Oracle

The increasing tendency for gold and silver to behave like safe-haven currencies instead of cyclical commodities has been a godsend for miners lately. On average, mining stocks have a higher correlation with broad stock indices like the S&P500 and FTSE than with metals prices, but when enthusiasm and demand for precious metals is at a fever pitch, as in the late 1970s to 1980, it seems that miners begin to distinguish themselves. I should note that the opposite is seems to be true at the other extreme – witness the 60% decline of the XAU Gold & Silver index from 1995-2000, while the S&P500 tripled.

Here’s a three-month view of our Base Metal Producer index vs. our Gold Producer index (you can play with more index comparisons here):

This month has not been kind to industrial resource stocks, since the broader commodity complex has been hit hard by traders anxious to unwind risk. For some perspective on how much unwinding has taken place, West Texas oil briefly traded under $80 this week, down from $114 this spring and $100 just three weeks ago:

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Dr. Copper is holding up a bit better, but is still down 14%:

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Not surprisingly, our Movers lists of best performing stocks over the past month are now dominated by precious metals companies. Here’s a snapshot, but you can see the whole list here and filter it by country or time frame:

Gold’s correlation with other commodities and even the stock market comes and goes. At times, it moves almost tick-for-tick with oil and base metals, at other times it has a strong negative correlation, and sometimes there is no discernable correlation at all. The last few trading days have produced a negative correlation with the “risk trade” (energy, base metals, stocks), and a positive correlation with the Swiss Franc, currently the world’s preferred safe-haven currency.

Gold stocks, however, have reverted to their unfortunate habit of falling whenever the broader equity markets experience a touch of panic. While it can be bewildering to watch gold move one way and gold miners another, value investors must be lining up with buckets the lower the XAU:Gold ratio falls (see chart below). This classic metric of the price of gold miners is nearing the all-time lows set in 2008. The lower it goes, the higher the potential earnings yield for owners of the shares.

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The place to look to take immediate advantage of this situation would be currently producing gold miners. In fact, our Gold Producers Index was the best of a bad lot on Friday, with a decline of just 1.7%, compared to 5.3% for Gold Explorers (and some much larger declines for industrial mineral companies).

Gold stocks don’t traditionally come to mind when you think of value investing, but if things continue in this fashion, we could find some great assets and solid cash flows for a bargain.

Protip: keep an eye on the Solid Gold Miners and Value Gold and Silver lists. These are updated each night using an automatic screen for certain value criteria (balance sheet tests, stock price relative to resources, etc).

Thursday was a sea of red across the board, as long trades were being unwound in every sector, resources not excepted. Our benchmark Mining Almanac Index of larger producers was down 6% for the day, compared to 5% for major indices like the Dow and S&P500. Sub-sector losses ranged from 4% in rare earths and zinc to 10% in heavy metals stocks. Gold producers declined 5%, which was a decent performance, all things considered.

On days like this, it’s interesting to check the movers page to see which stocks bucked the trend and managed to actually go up a lot. Here’s the top of that list:

Despite their general positive correlation with broad indices, the mining sector has held up very well despite a dismal couple of weeks for stocks in general. Gold approaching $1700 might have something to do with it, but even such industrial mineral sectors like base metals, rare earths and uranium have been stronger than the Dow, DAX and FTSE.dex, vs. the S&P500 over the last month.

GDX, the gold miners’ ETF, is up 7%, while the S&P is down 6%, a 13% outperformance for the miners:

Even downtrodden uranium stocks have caught a bid this summer:

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SITE TIP: Peruse & compare our mineral sub-sector indices here, and see which have been the strongest.

The entire minerals sector has performed very well in July, with precious metals stocks finally catching a bid, but industrial materials stocks have been the best performers of the year.

Here’s a chart of some of the strongest indices since the 2008 crash (pink: rare earths; purple: heavy minerals; blue: base metal producers; green: coal):

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Site tip: To compare indices in a single chart like this, go to http://miningalmanac.com/indices and select “compare” or just go to http://miningalmanac.com/indices/compare.

You can also compare any individual stock to the indices (or the gold price) by going to its pages and clicking on the “charts” tab: