Buying Gold Mining Shares Today Is Like Buying Stocks In 2009

Gold is one of the most hated asset classes on the planet. The global monetary journey should have been beneficial to gold, except the opposite was true. Theory and practice are only the same in theory, never in practice. But now, things are starting to turn around.

Gold has proven to hold its value as the purchasing power of fiat currency erodes. People who bought gold in 2011 wouldn’t believe you when you say an ounce of gold supposedly bought 350 loaves of bread in ancient Babylon. This is remarkably close to today’s price. But in the long run, gold protects your purchasing power.

Redemptions hit GLD as gold prices were nearing their lows, reflecting the “deep despair” that typically occurs at bear market troughs. When nobody is left to sell, there are only buyers and momentum turns.

Buying gold today is like buying stocks in 2009.

We found 4 good reasons to buy gold today.

# 1. Technical trading patterns

Gold price is up nearly 20% Year-to-date, gold mining shares are up on average 50%. Technical trading patterns suggest the yellow metal may be rounding the corner and getting ready to break out into a full-fledged bull market. GLD can even retest $114 and still be in a new uptrend.

# 2. It’s still hated

Attitudes don’t change overnight, but a trend does. Trading volume in gold and gold mining shares are up, but investors still hesitate to reembrace gold. This means an even bigger shift in sentiment is needed to convince the skeptical gold bugs, so there is more room to run.

# 3. Real interest rates are heading lower

Real interest rates are heading lower again. Between 2011 and 2014 real interest rates were negative but rising. In 2015 real interest rates were positive for the first time since the financial crisis. But that didn’t take long. Real interest rates are heading lower again. When real interest rates decline, gold shines most of the time.

# 4. Bullion shortage

Bullion gold flows to Asia. Until 2015 the west was selling bullion to the east. This year things are changing. $8 billion is gone into gold funds in February. About 100 tons a month is going into the world’s ETF’s. Annualized that’s 1,200 tons of gold purchases this year just for ETF’s. Last year they sold 138 tons, so you have a total delta there of 1,338 tons in a 4,000 ton market.

Mouth-watering returns for gold mining shares

Jeff Clark, Hard Assets Alliance, looked at six major bear markets (including the current one) since 1975. If the $1,049 low on December 17 marked the bottom of the bear market, then the next dip in price will be nothing more than the normal ebb and flow you find in almost any bull market.

The gold bear market was the second longest on record. The kind of returns we can expect are pretty mouth-watering. If we ignore the highest (+717%) and lowest (+25%) gains, the average bull-market advance in gold is 175%.

So, what does this mean for gold mining shares?

The HUI-index rose 65% year-to-date from 100 to 165. It crushed the resistance at 125 and 140. Now it’s moving towards 200 and 260, from the current level a 21% and 57% rise.

As you can see, nothing beats a bull market in gold mining shares.