Loading ...From the 1980s through the 2008 financial crisis, the XAU Index maintained a consistent relationship with gold, averaging between 17-35% of gold’s value. Today its still under 8%!
H/T Michael Oliver of MSA for chart
For over three decades, from the 1970s through the 2008 financial crisis, the XAU Philadelphia Gold and Silver Index maintained a consistent relationship with gold, averaging between 17% and 35% of gold’s value.
This ratio was as reliable as gravity; when gold moved, miners moved proportionally, often with explosive leverage to the upside. Then 2008 changed everything. The XAU/Gold ratio collapsed to a historically unprecedented 5-8% range and has remained trapped there for over 15 years.
Even with the recent surge in mining stocks, the ratio hasn’t exceeded 8%. But history suggests this compression is temporary.
When the ratio finally breaks back into its historical 17-35% channel, mining stocks won’t just double; they could explode 300-400% as decades of undervaluation unwind in a violent mean reversion.
The Historical Relationship That Defined Precious Metals Investing
From the late 1970s through 2008, the relationship between the gold and silver miners vs. gold was remarkably consistent. The XAU Philadelphia Gold and Silver Index, which tracks the performance of companies in the gold and silver mining industry, maintained a ratio between 17% and 35% of gold’s price. This wasn’t a coincidence; it reflected the fundamental economics of gold and silver mining.
The math was straightforward and the index kept pace with gold’s ascent and descent. This relationship held through multiple bull and bear markets, economic cycles, and geopolitical crises. It was the bedrock assumption of precious metals investing: miners provided leveraged exposure to gold with predictable parameters.
The ratio wasn’t static; it oscillated within the channel. During gold bear markets, the ratio would compress toward the lower rail at 17%. During gold bull markets, it would expand toward the upper rail at 35%.
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