Gold stocks have fallen dramatically from their 2011 highs and are trading down at strong resistance. While prices could languish or drop even further, Jeff Clark takes the gold-lovers' side and argues that gold stocks are a great value (below).
The first chart below is of GDX (Market Vectors Gold Miners ETF) from 2007 to the present (Big Charts). [Note: GDX "is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver" (Yahoo).] GDX is solidly below both its 100 day and 200 day moving averages, and at 2008 financial crisis levels.
In the second chart below, the gold line represents the USD which has been moving predictably in the opposite direction of gold during the US Dollar's latest surge. To the extent that many people think of gold as an inflation hedge, it is not needed now. (However, we suggest that gold is not a good inflation hedge in Hidden Dangers in Gold.) As the second chart below shows, sometimes GDX moves apparently uncorrelated or positively correlated with the US Dollar, and sometimes it moves in the opposite direction.
As I noted, Jeff Clark is bullish on gold mining stocks…
Will Warren Buffett Really Let This Deep Value Slip By?
By Jeff Clark at Casey Research
Even the staunchest gold investors are weary of the years-long drubbing the gold price has taken since its $1,921 peak in August 2011. Whether the frustrating experience is the work of a market-rigging conspiracy, government manipulation of data to hide inflation, those blindingly loyal Keynesians who keep pounding us with messages that gold is nothing but a “shiny bitcoin,” or the gullibility of mainstream investors who tell themselves that, gee, since Warren Buffett is a billionaire, his “gold has no utility” mantra must be right, it hasn’t been fun. The nasty downcycle has offered no respite.
That’s all about to change.
If there’s one constant in the resource sector, it’s the boom-bust-repeat cycle that over the past 40 years has been almost predictable. This is particularly the case with gold stocks.
We charted every major cycle for gold stocks (producers) from 1975—when gold again became legal to own in the US—to the present. You can easily see that not only do gold stocks cycle up and down repeatedly, but the percentage gains for buyers at a cycle bottom can be downright mouthwatering.
What’s interesting about where we sit today in early 2015 is that gold stocks have now logged the second-deepest bear market since 1975—rougher even than the selloff following the 1980 mania.
This history teaches three “how to get rich” lessons.
- For the recent bear market, the bottom for gold stocks is almost certainly in.
- The next major cycle in gold stocks will be up.
- The profits could be spectacular, because as the patterns show, triple-digit gains have been common.
Gold stocks have finished the bust that tormented investors for more than three years and are now preparing for another boom. All you have to do is hold on and wait for the next cycle to begin. No timing required.
The only thing we don’t know is if Mr. Buffett will see this chart and jump on the in-your-face deep value that gold stocks are showing right now.
Gold stocks will soon go vertical again—just as they have many times in the past—and investors with just a smidgen of patience will see their gold portfolios driven by a hurricane-force bull market. Virtually all gold stocks will go much higher. As in the past, gains for the strongest juniors will be 10-to-1, and you can expect a few superstars to return 100-to-1.
I talk about this rich opportunity with some of the most successful investors in the gold sector—Pierre Lassaonde, Frank Holmes, Rick Rule, Bob Quartermain, Ron Netolitzky, Doug Casey, and Louis James. Check out our free webcast, Going Vertical, a one-hour event to which we extend our invitation to Warren Buffett.
