As one gold producer commented around Diggers, we sold 1000oz gold and received more than $1.7m!! And now the gold price is at US$1870/oz (22 August 2011). We recall that in 1980, when the gold price soared to ~US$850/oz (on about the 20 January 1980), the gold shares drifted sideways, and it was in the second run after the price fell back to US$500/oz and then increased to ~US$600/oz to US$650/oz, that the gold index / gold shares almost doubled, as shown in Figure 9a.

Eoin Treacy's view Veteran subscribers will be familiar with David's recollection of these events, last reviewed in Comment of the Day on August 22nd. It takes time for the effect of higher gold prices to become visible in the earnings of smaller gold companies but there is an inevitability to that process provided gold prices continue to hold at comparatively high levels.

The NYSE Arca Gold Bugs Index of major unhedged gold miners has been ranging between 500 and 600 for the last year. It has returned to test the upper side over the last month and a sustained move below 560 would be required to question near-term potential for a successful upward break.

Some of the most noteworthy constituents are:

New Gold and Randgold Resources have rallied particularly impressively this month to new highs. They have become overextended relative to their 200-day MAs in the process and the first clear downward dynamic is likely to mark at least a near-term peak. (Also see Comment of the Day on August 23rd).

Yamana Gold broke out of an 18-month range four weeks ago and a sustained move below $14 would be required to begin to question medium-term scope for additional upside.

Eldorado Gold, Newmont Mining, Agnico-Eagle Mines and Cia de Minas Buenaventura have all broken multi-month progressions of lower rally highs. Silver Lake, mentioned in the above report shares a similar pattern with these shares.