Tuesday, May 03, 2011

Want To Buy Gold Miners? Take Advantage of the Insanity Now!

3 May 2011

The word "duh" no longer describes what is happening to the market prices of gold miners. This is insanity, plain and simple.

The gold price is doing fine today, presently in the $1530 range.

In fact, this is an awesome, really wonderful gold price for gold investors!

Among other metrics, gold is now trading $50 higher than Goldman Sachs' $1480 intermediate target price for 2011, and much higher than all but the most optimistic analysts thought it would trade this year - thanks, of course, to demand in China and India, whose citizens and governments now consume - between them - over 70% of the world's gold.

However, gold stocks are falling out of bed... again! (It's getting tedious, and perhaps a little too predictable....)

Have a look at Goldcorp, the fastest growing - and best - major gold and silver miner. It is being pummelled, and is (again) back below early 2008 levels, where it is revisiting its peak levels even of May 2006. I had to draw up a 6-year chart to illustrate this numbingly obvious point!

Why is Goldcorp pulling back to these levels? In fact, there is no fundamental reason for the stock to trade anywhere near its current range....

If the gold price were to fall back to say, the $1000 level, it might begin to justify the current pricing of the miners. Anywhere in the current broad range that is well over $1000 allows gold miners to rake in profits. Their business is not just "fine," it's unbelievable! Gold mining companies are generating unprecedented profits, probably the best in any industry (as gold mining shares receive a premium over base metal mining shares, because gold trades as both a currency and a commodity).


Let's look at Goldcorp again, in relative terms.

Contrasted to the gold price, apart from its similarly bizarre dip in January of this year, the share price of Goldcorp is at its lowest level since November 2008, at which time gold was priced at $700 - that's right - less than half today's prices! The following relativity chart divides Goldcorp's share price by the price of the GLD ETF - a gold price proxy which allows me to show today's intra-day action:

So, are you worried that gold may pull back to $1400? $1300? $1000?

Forget about it! It doesn't matter. Today's gold mining stock prices would still be justified - even a bargain - at such levels - particularly as no one could suppress the price at such levels for long!

So if, like me, you're not gravely concerned if gold falls back a bit - even quite a bit - from its recent record highs in the upper $1500s, then you are looking at screaming buys across the entire gold mining sector. Keep in mind that no investment product can set a record high day after day. There have to be intermediate peaks and valleys - it's no big deal... and it's certainly not a sign of a topping long-term market price (gold has thousands of dollars to go from here)!

My suggestion, load up on the premium quality gold miners, the Doody Top Ten if you will: Goldcorp, Franco Nevada, New Gold, Yamana, Gold Resource, Royal Gold, Minefinders, and more. In the area of silver, Silver Wheaton is a giveaway, as is Alexco - which in my opinion is the best Canadian-based silver miner.

Stock up now, and offer special thanks to the momentum traders who will sell you the best companies in the world today - in any sector - at one-half to two-thirds their inherent value!
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