This chart shows how pricey gold mining stocks really are

The gold price drifted lower on Monday, despite a surprise drop in the sales of new homes in the US and geopolitical tensions increasing its allure as a safe haven.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery settled at $1,278.90 an ounce, down slightly following a 2% decline last week.

Technical research and investment blog InvesTRAC passed on this price graph to MINING.com showing how the Philadelphia Gold & Silver Index (INDEXNASDAQ:XAU) of top precious metal stocks has run ahead of the gold price:

Gold shares are not cheap. In fact relative to the price of the metal, gold shares are historically expensive.

This view is based on the ratio of the XAU index relative to the gold price. Have a look at the weekly chart of this ratio below…it shows data from from January 2008.

The downtrend is drawn in from the peak at 0.2389 made in October 2007(not shown) and now the ratio is at 0.07798 which is just a third of where it was back then.

This has caused some analysts to suggest that the shares are therefore cheap. But the ratio has run into the downtrend and recent previous highs which should give one pause.

But the RSI is what convinces me that the shares are expensive in the medium term…each time weekly RSI has been above 60 it has resulted in a drop in the ratio as the XAU index dropped faster than the metal price.

In addition the InvesTRAC medium term model's OB/OS indicator is standing at maximum overbought 100 and the medium term forecast is for the ratio to decline until February/March 2015.

Let's see what happens.

This chart shows mining stocks overvalued vs gold price

Source: Investrac