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It’s not crazy to think that gold stocks could easily double from their current levels if you realize the extreme condition the gold-stocks-to-gold ratio is in – and if you know your market history. Let me explain. Words: 336; Charts: 1
So writes Matt Badiali (stansberryresearch.com) in edited excerpts from his original article* entitled Why Gold Stocks Could Easily Rally 100% This Year. (Hat Tip to Arnold B.)
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Badiali goes on to say in further edited (and paraphrased in some instances) excerpts:
…Gold has fallen from $1,675 to -below] $1,300 and that [has] caused a 52% selloff in gold stocks…[with] weaker players…[losing] more than 75% of their value. It’s a “blood in the streets” environment for the sector and, when there’s “blood in the streets,” there’s often great value.
The HUI to Gold Ratio
One measure of value for gold stocks is the gold-stocks-to-gold ratio. This is a simple measure of the ratio of the price of gold stocks to the price of gold. When it gets badly out of whack, big moves happen in gold stocks. [Read Don’t Be Misled – There are Major Differences Between the HUI, XAU & GDX to better understand the differences.]
The chart below shows the ratio of the value of the AMEX Gold Bugs Index (“HUI”) to the price of gold. When the ratio is very high, it means gold stocks are expensive relative to gold. When the ratio is very low, it means gold stocks are cheap relative to gold.
Conclusion
We can’t know for sure if gold will hold steady around $1,300, slump to $1,000, or rally to $1,800…but we…[are of the opinion that] if gold holds steady, or rises just a little, gold stocks could stage a big “catch up” rebound.
History shows that 100% gains are possible here. Don’t miss out on them.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.stansberryresearch.com/growth-stock-wire/3494/why-gold-stocks-could-easily-rally-100-this-year (© 2013 Stansberry & Associates Investment Research, LLC.)
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