Gold And Silver Mining Shares: Which Multibagger Stocks Do You Want?

For the first time in 4 years the price of gold (and silver) are actually in the process for a sustaining bottom. There are clear sings the bear trend in precious metal is coming to an end. This could be the start gold stocks are waiting for to outperform the markets.

Gold completed a small compound bottom and an 11-week cup and handle pattern. Since 2011 only on a few occasions, gold experienced a significant bottom formation on a single daily chart. What we saw at the end of last year and in the beginning of 2016 was the first since 2013.

This is good news given Gold’s sustained bear trend. If the yellow precious metal can hold on to this rally, on the short-term a $1,180 – $1,190 rally will be no surprise. That’s a more than $100 gain or a plus 12% increase in a few weeks.

(chart courtesy to Peter L. Brandt)

The same thing applies to silver. There wasn’t a successful daily chart bottom in several years. The chart now exhibits a possible H&S bottom — with two heads and an abbreviated right shoulder. On the short-term a $15,59 rally will be no surprise either. That’s an incredible $1,80 move or a plus 13% increase in a few weeks.

(chart courtesy to Peter L. Brandt)

Gold and silver traditionally do well at the beginning of a new year. But this year seems somehow different. The stock market peddles in the dust while the two majors precious metals are in the process of a permanent bottom formation, not seen in the other short-term rallies we saw earlier.

It isn’t a reversal yet. Bulls are awake but the burden of proof rest with persistence. Gold remains in a long-term downward channel. This rally indicates more the start of building a permanent bottom than the start of a new bull market.

Federal Reserve can’t keep it’s promise

But things a looking brighter each day. Last week a global slowdown and a lower than expected job report has increased speculation that U.S. growth will cool enough to force the Federal Reserve to wait longer before raising interest rates again. The chance we see another increase this year nose-dived to less than 50%.

The prospect of delays sent the dollar lower and gave metals a boost. As people pile into gold exchange-traded funds at the fastest rate in more than a year, it’s clear that the precious metal’s appeal as the ultimate safe haven now extends well beyond the universe of dollar-doubters and doomsayers otherwise known as ‘gold bugs.’

The past years gold-ETF’s lost $2,7 billion out of those funds. This year gold ETF’s took in $2,4 billion.

What are multibagger stocks after a deep market correction?

The ones that sold off the most, the ones that are priced for bankruptcy. The moment the market realizes that it is not likely to happen, we could see some extreme moves in those stocks. And by extreme, we mean 100% to 300% moves in a few weeks, like gold and silver mining shares.

Miners are now lean and profitable, even at current gold prices. Gold mining stocks are now trading at the lowest price-to-cash-flow multiples and at the largest discounts to their net-asset-value we have seen in decades, if ever.

These companies learned. Managements were replaced. Costs were cut. Humility and the shareholder perspective retook the center stage in a lot of cases. Miners only need a small spark to turn undervaluation into a mean reversal.

The HUI-gold ratio has an historical average of 0,30. Below 0,30 means gold stocks are undervalued against gold. The current ratio is still below half historical average at 0,13. During the 70s and 80s gold stocks even traded at lofty valuations relative to gold with a record 1,90 ratio. So gold mining shares aren’t cheap versus its own history but also versus its main resource: gold.

This suggests that there is huge upside ahead in mining stocks, even absent a huge move in the gold price. Gold mining shares have a 3x tot 5x leverage to gold, the best-in-breed could even see a leverage in the range of 10x to 20x the gain in the price of gold and silver.

Secular bear markets in the past have always taken valuations back to the levels at which the preceding bull market started, or even lower. That’s where we are now.

Gold miners witnessed one of the worst price performances in history and now trade at compelling valuation lows. With this near obliteration of the sector, we believe gold stocks will successfully start to battle their way upward.

Join the birth of a new bull!

The industry average cost to mine gold is $900 per ounce. The metal is trading near $1.100, this counts for a $200 profitper ounce .When gold rallies and mining costs essentially remain fixed, this leads to a big margin expansion and profit rise.  If gold only rallies 10% to $1.210 for example, industry earnings would climb to $310 per ounce, a massive 55% gain.

Gold and silver mining shares could soon “regress to the mean” and move much higher. This means they can rise tenfold, that’s when they become ten baggers. The best mining stocks have a tremendous upside. It’s not uncommon for mining-stock investors to turn $10,000 into $100,000 by buying the right miner at the right time.