How bad has the gold shares under performance to gold been since 2010? The first response might be bad, but the the correct observation should be extreme.

• The gold shares to gold ratio produced 4.3 cycle Z-score reading of -2.35. This suggests severe under performance of the gold shares relative to gold through May 2012.
• This reading is the lowest reading since 2007.05 and seventh lowest since 1922.
• +/-1.96 implies a data point that exceeds 97.5% of the readings over the past 4.3 years assuming a normal distribution. A -2.35 reading pushes this percentage above 99%. This is an extreme data point.
• The lowest 4.3 cycle reading was -3.22 and was generated in 1940. This was followed by one of the lowest 8.6 cycle readings of -2.27 in 1942. The lowest combined 4.3 and 8.6 cycle readings of -2.97 and -2.77 was generated in 1973. This was a majority entry point for gold share investors. A similar combined reading of -2.01 and -2.80 was generated in late 2008. This was also a major entry point for long-term gold share investors.
• The extreme under performance of the gold shares has been driven by either intense emotional selling or a flight of capital ahead of yet another shock within the evolving sovereign debt crisis. For example, the extreme under performance of gold in mid 2007 which produced a Z-score reading of -2.33 represented a flight of capital from the gold shares (risk) to gold (risk aversion). The extreme readings of 2007 and 2008 preceded the financial crisis of late 2008. Cycles work, however, places the next shock within the global crisis between late 2015 to early 2016, so probabilities favor intense emotional selling rather than flight of capital. This suggest a comparison to 1978 rather than 2007.

Chart: S&P Gold (Formerly Precious Metals Mining)* to Gold Ratio: * S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining