Gold mines are exploding again – This is why…

This could be the last time you can buy gold mining shares this cheap. Gold and silver rallied at the beginning of the year, they consolidated and now they are booming again. What held investors back is starting to change, silver is taking the lead, as it should be in a bull market.

Many investor in precious metals was worried silver didn’t follow gold. Until March 1 gold rose double the pace of silver. Gold rose 17,9% and silver 7,6%. But the last month silver rallied furiously, 5 times as fast as gold. At the beginning of the week silver rose 3,6% and gold 1,3%, again silver outperformed gold.

The silver chart is truly impressive the last weeks.

 

To clear the way, silver had to break through the resistance at $16. It was struggling to break resistance but silver remained outperforming gold. That was a good sign. When silver completed the $16 hurdle, there is no way back and room until $20, that’s another 25% rise.

And the evidence for a higher silver price is solid:

• Q1 Silver Eagles sales record of 14,842,500 ounces
• Perth Mint March 2016 silver sales up 175% vs. March 2015
• Silver Maple Leafs sales up 76% year on year
• Mexico, the top producer of silver in the world, production is set to drop by 6% in 2016

Silver is killing gold

With silver leading gold, there’s more evidence both precious metals are at the beginning of a new bull market. Let the new gold and silver rush begin.

After doubling in the first months of the year more and more investors are returning to gold and silver mining shares. The cheap valuation is popping up on the radars and they like what they see: gold and silver mining shares are still very cheap.

 

Just look at the price/cash flow ratio. In 2011 when gold and silver mining shares peaked, P/CF ratio stood at 15, the historical average.  But during this deep bear market, the ratio tumbled to 8. When the next bull market really heats up and investors love gold stocks again, this ratio can rise again to 15 or maybe 25 like in 2008. This means gold and silver chares will skyrocket.

The HUI-index rose this year from 100 point till 200 point, that’s a 100% gain in only 3 months. When the price/cash flow ratio hits 15 – 20 again, we wouldn’t be surprised if the HUI-index conquered 1.000 point. That’s the power of a bull market in gold and silver shares.

So witch shares should you buy?

If you are a cautious investor, but you believe gold will rise the coming years, you should focus on profitable producers.

If you want to maximize your gains and you’re willing to take higher risks, you should focus on early-stage gold explorers.

If you’re somewhere in between, like most investors, advanced explorers moving known discoveries towards production are the best stocks for your portfolio.

As a reminder, gold and silver stocks rose 602% on average in the 2000 – 2003 bull market. That means the best breed rose 1.000%. Today the sector is in the same shape as it was at the beginning of the century. So buckle up and enjoy the ride.