Tuesday , 26 September 2023

Don’t Turn Your Back on Gold Miners – Here’s Why

Gold miners have become incredibly oversold…[but their] fundamentals…remain sound…[making] the recent selloff…a substantial buying opportunity. 

The gold mining sector has been battered in recent weeks. VanEck Vectors Junior Gold Miners ETF (GDXJ), for example. is down by exactly 20% from its mid-February top.

([For the record,] The VanEck Vectors Junior Gold Miners ETF:

  • aims to imitate the price and yield performance of the MVIS Global Junior Gold Miners Index (MVGDXJTR), which is intended to track the overall functioning of small-cap companies that operate in the mining sector for gold and/or silver,
  • has total net assets of roughly $3.7 billion and each share in the ETF represents a part ownership stake in the fund for investors,
  • has a total of 57 holdings…)

[As can be seen in the chart below] GDXJ is trading towards the bottom-end of a multiyear trading range now. Crucial support now is the $28 level, and if the stock falls through we have another area of major support at $26. [That being said,] however, I don’t expect GDXJ to fail technically here. The fundamentals surrounding gold and gold mining are simply too compelling to ignore at these oversold and discounted levels.

GDXJ appears to have bottomed last September, and that bottom was confirmed by a retest in December. The mid- to long-term future image is extremely bright for gold, gold miners and GDXJ yet this ETF is just 7% above its bottom in 2018…In comparison, tech stocks, discretionary names, communication, materials, industrials, etc. are up by approximately 25-35% off their respective bottoms in December.

I believe now is a great time to step in to GDXJ, and other names in this sector with high upside potential.

Newmont Mining (NEM)

NEM, an extremely solid gold miner – one of the best and biggest in the world is down by a staggering 17% in the last month. Moreover,

  • the RSI is at a ridiculously low 22 strongly suggesting that shares are abnormally oversold and are extremely likely to surge from the $30 level. In my view, we could see NEM at $33-35 within about 1 month.

  • NEM is expected to earn $1.45 per share next year, which puts its forward P/E ratio at just 20. This is relatively inexpensive for a dominant, market leading company, used to beating consensus forecasts.
  • NEM has beat consensus EPS estimates by an average of 40% over the last four quarters so it is not difficult to imagine that NEM can continue to outperform EPS-wise going forward. Analysts’ estimates have shown a clear tendency for being too low for this company, therefore, NEM could conceivably beat next year’s EPS estimates by about 15-20% implying that NEM…[could trade] at just 17.64 next year’s earnings estimates. In addition, NEM is expected to increase revenues by nearly 36% this year and by 13% in 2020. Due to the significant rise in revenues NEM may be able to deliver even higher EPS going forward, which is why NEM remains one of the most compelling gold mining names to own in the world.

Favorable Factors for Gold and Gold Miners

  1. There’s a 50%/50% chance rates will either remain as they are today or will move lower from here. This is ultimately bullish for gold and gold miners as the Fed’s overall tone seems to be pointing towards an easier interest rate trajectory.
  2. A recession is inevitable, and one could occur, theoretically, within the next 12-18 months…[with] the Fed,…most likely, lowering rates….
  3. We…[saw] inflation going lower in recent months. This isn’t necessarily a bad thing, as it keeps the Fed from raising interest rates…[but], if inflation continues its dip, it could hurt gold prices. Nevertheless, the most recent CPI number came in at 1.9%, noticeably higher than the previous 1.6% and 1.5% readings. I also think this is a favorable element for gold as it shows inflation rebounding, making a better case for higher gold prices.

The bottom line: don’t turn your back on gold minersMany names have become extremely cheap, and extraordinarily oversold…

Editor’s Note: The above excerpts* from the original article have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement. The author is receiving compensation from Seeking Alpha for pageviews of his original article as posted there so please refer to it for the unedited version.

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