In 2011 everybody agreed: gold would rise above $2.000. Today everybody agrees gold will descend below $1.000. Everybody was wrong in 2011 so possibly everybody can be wrong again in 2015. So, what does this mean for gold mines?
Gold mines are extremely cheap; they are cheap against gold, against stocks and against their history. But during this bear market we saw the power of gold mines a few times when a reversal came along.
The HUI index is at the same level of august and october. The gold prices is at the lowest level in nearly 7 years and below the lows of august and october. This means gold mines are outperforming gold.
And just look at the last up-move the HUI index made: from 104 to 140 in just two and a half weeks. That’s as if the Dow Jones went from 18,000 points to 24,000 points. The HUI index can rally that much and still be way below its 200-day moving average.
When this bear markets ends (and it eventually will) and a new bull market arises, the gains can be tenfold.
OK, the gold price is depressed … against the dollar. If one looks beyond the usual dollar-centric view, than gold is actually acting good. Gold in terms of commodities, the euro and the yen is on the rise since 2013.
The sentiment to gold is not extremely bearish, but gold is out of favor at least. This sentiment/positioning-related chart shows CEF’s discount to NAV (CEF is a closed-end fund holding gold and silver bullion) as well as Rydex precious metals assets and cumulative flows. CEF’s discount to NAV is back to 11.4%, at the low end of its range.
The threat of a rate hike has done a lot of damage to the gold market in USD terms. The actual hike could easily become a “buy the news” event. This could spark a new rally in gold … and gold mines.
A little rally in gold is enough to see gold mines rise 20% to 40% or more in a matter of weeks.
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