An Introduction

"...Gold miners are earning enormous record profits, fueled by gold's powerful bull market yet traders have been slow to recognize this, leaving gold stocks seriously undervalued relative to their underlying earnings. This striking anomaly won't last, as eventually stock prices always mean revert to some reasonable multiple of corporate profits..." says Adam Hamilton in his latest analysis of the market (see here) which has been severely edited and abridged (by 61%!) in this excerpt.

Stunning Anomaly In Effect!

Hamilton goes on to say that "From 2021 to 2024, average gold prices soared 32.2% yet average gold-stock prices per GDX only edged up 3.1%! This is a stunning anomaly, as historically, the major gold stocks dominating the GDX have usually amplified material gold moves by 2x to 3x driven by gold-mining profits leveraging higher gold prices. As mining costs only rise slowly, gold outpacing them fuels outsized earnings growth...[and, indeed,] the sector earnings growth is UP 74% YoY....With earnings nearly doubling, it makes no fundamental sense at all for yearly-average GDX prices to only be running 16.4% better this year...

The Gold Stock Price Relative To Gold Is Shockingly Low

This unsustainable valuation anomaly is even more shocking when the GDX is compared to the price of gold bullion...Since prevailing gold prices overwhelmingly drive gold-mining profits, looking at gold-stock price levels relative to gold bullion - dividing GDX's daily closes by the GLD gold ETF's yields the GDX/GLD Ratio or GGR....[At the end of 2023 the GGR was 0.162x and, currently (December 15th], it's at 0.150x which is jaw-dropping!... and, while the GGR slumped to an incredible and epic gold-stock-buying opportunity 0.137x...back in late September 2022...it's not far off and that portends another massive gold-stock surge soon...

• Over the next 4.0 months after that late-2022 episode, GDX blasted 52.1% higher,
• in 7.8 months after February 2024's extreme GGR low, GDX soared 71.0%!

Odds are even-bigger that gold-stock gains are coming after this latest seriously-undervalued low....Past super-low-GGR extremes are always followed by major gold-stock uplegs and gold miners tend to not only mean revert to normal GGR levels, but overshoot proportionally to the upside... There are strong arguments for this gold bull powering much higher, led by American stock investors shockingly not yet chasing gold's upside. They have enormous buying to do.

Gold's last two monster-grade uplegs both cresting in 2020 required massive gold-ETF-share buying to catapult gold up 40%+ yet today's even-bigger monster gold upleg has yet to see any material GLD and IAU capital inflows! American stock investors have been distracted by this seductive AI stock bubble, mostly ignoring gold. The former is overdue to burst, which ought to spawn a frenzied stampede into the latter...

 It is shocking and absurd to see gold stocks languishing at major-secular-low levels relative to the metal driving their profits but this unsustainable anomaly is full of big bargains for smart contrarians. Multiplying wealth requires buying low before later selling high, with that first step being the most important and gold stocks are certainly relatively-low today.

The higher gold and gold stocks climb, the more and more-favorably the financial media will cover them, and the more traders will become aware of this big upside and want to rush to chase it, and buying begets buying, driving prices higher exciting more traders attracting more capital inflows."

The above words second the comments I made the other day in an article entitled Get Positioned! A Parabolic Move In Gold Juniors Is About To Begin in which I said, "As the U.S. dollar rolls over on inflationary debasement more and more speculators will flood back into gold futures which will catapult physical gold and silver higher and that will motivate investors to chase the precious metals’ upside momentum which will accelerate the parabolic move further and faster. With that, the gold and silver stocks will rocket higher in a massive up-leg perhaps even surpassing the massive up-legs experienced back in 1979/80 and the mid-1990s".

Conclusion

The bottom line is gold stocks are big bargains today. While gold remains near recent record highs, the major gold stocks of GDX are deeply-undervalued. Shockingly they are trading at similar levels relative to their metal seen during late 2022's major secular bottoming! Despite gold miners earning record profits and achieving six consecutive quarters of enormous earnings growth, traders continue to mostly ignore them.

Hamilton concludes his article by stating that "This unsustainable anomaly won't last, as stock prices always eventually normalize to reflect reasonable multiples of their underlying corporate earnings. Gold miners' rich-and-fat profits will force their stock prices much higher. That overdue mean-reversion buying getting underway will boost bullish sentiment, attracting in increasing numbers of traders to chase gold-stock upside. Buying in ahead of that will prove lucrative."