Time for a New Direction in Gold Mining Stocks!

22 August 2011

This seems so obvious it doesn't require saying. However, I'm saying it.

Gold is doing well because the folks who manage our economy are not doing their jobs well. I have commented on why that is the case in many previous posts and won't repeat it here.

Look at gold - doing fine:

Now, take a look at Canadian gold mining stocks compared to gold on this ratio chart.

Does anything strike you as unusual?

Hey, these companies mine and sell gold. Gold is going up. The stocks should go up too, and faster than the increase in the price of gold.

Why? Because production costs are rising more slowly than the price of gold, and gold miners' profit margins are therefore rising faster than the market price of the product they sell.

This trend has continued for ten years, but has not been reflected in the share prices of the gold miners.

Therefore, in my opinion...

It's time for a new direction in gold mining stocks!

We've come to a fork in the road....

If I'm right, gold stocks can double from here like falling off a log.

In fact, as this relative downtrend in the gold miners has progressed, I've actually been raising my targets.

Why?

I think we are seeing tension analogous to a spring under pressure. With release of the downward force (the broad markets have not believed in the 10-year gold trend), the prices of the miners should spring upward with ever more force.

Watch out above....
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Gold, the Obvious Investment

8 August 2011

It is now early morning, the first trading day after the S&P downgrade of US debt from AAA to AA+.

Gold has spiked higher, most recently, from prices in the $1660 range to prices in the $1710 range.

I wrote last week about the correlation of the gold price and the national debt.

Many now feel that gold has become an "obvious" investment.

I see it differently.

I think that gold was already the evident (not yet obvious) way to go in 2001, following the crash of the internet bubble - which even at that time was fuelled by Federal Reserve money printing and US government debt (Remember? It seemed like a big bubble at the time....).

If gold was the evident go-to investment in 2001, then by 2003, it had reached the stage of obviousness that the metal of kings would preserve its value better than any currency that was backed by a central bank whose members (and later chairmen) used helicopter analogies when talking about how to stimulate a slowing economy!

It just took some folks a little longer to catch on (for example, by buying at $1710 today, rather than at $330 in 2003!)....

I'm still waiting for gold stocks to trade at "bubble valuations," as the NASDAQ did in the 1990s - oh yes, and still does!

In fact, the better gold miners are trading at roughly a 60% discount (or more) to the value of their gold in the ground (after production costs). John Doody has calculated that his top ten gold stocks can easily double as a group, just to reach their inherent value at $1500 gold (Wait, isn't gold now $1700? Oh yes, he was writing last month!).

Gold has been "obvious" for the past 8 years and for the past $1400 in appreciation.

My advice?

Stick with the obvious.

This is the gold tsunami.
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Debt Ceiling Up... Gold Price Up... What's Next?

2 August 2011

I think this chart, posted on Zero Hedge, requires no explanation.

Now that the debt ceiling has been lifted $2.5 trillion, what do you think will happen to the gold price?

(Hint: simple correlational analysis suggests $1950 gold.)

Of course, the two charts could decouple at some point.

However, if this occurs, it presently seems that gold may break higher before the debt ceiling because:

(1) investors are catching on that we are past the point of no return,

(2) the gold universe is much smaller than the debt universe, and

(3) Asians understand the gold market better than Western investors, due to the long-term view that characterizes Asian culture.

This is the gold tsunami.
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