The precious metals correction is here. Gold and silver are down… and gold and silver stocks, as should be expected, are down even more but…have been hit much harder than they should have been. As a result, right NOW is the best time [we have seen] to buy gold stocks in more than two years and they’re poised to make another run of 30% in the next few months. Here’s why. Words: 767
So says Andrew Mickey (www.q1publishing.com/) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Mickey goes on to say:
The Time to Buy Gold Stocks
The relationship between gold and gold stocks has always been a strong one…but since the market bottomed in March 2009, however, gold and gold stocks have run very closely together…[with] gold up 60% and gold stocks, as tracked by the Market Vectors Gold Miners ETF (NYSE:GDX), up a mere 67%. That’s pretty poor performance considering the leverage gold stocks have historically had to the price of gold – but it’s also creating the best opportunity to buy gold stocks in [more than] two years.The chart below shows the relative performance of GDX to gold prices:
When gold prices rise and gold stocks don’t immediately follow, the ratio rises. When gold prices fall or stay flat and gold stocks have “caught up,” the ratio falls and, right now, the ratio is at its highest point since April 2009. That means NOW is time to buy gold stocks.
Gold vs. Gold Stocks: The Tale of the Tape
Gold stocks have been walking up stairs over the past two years. They move up suddenly, flatten out or correct, then jump again, and over and over again. It’s typical action for any bull market and because of this activity, most of the money made in gold stocks came during a few brief periods in the last two years.
The table below shows that the majority of the upswing in gold stocks came at a time when the Gold/GDX ratio was at an extreme high like it is now [and] shows the biggest moves in gold stocks over the past two years relative to gold prices:
Each one of the above moves [in gold stocks] came in the months immediately following the point at which the Gold/GDX ratio reached the same level it right now – [and] that’s why right NOW is the best time to buy gold stocks in the past two years
Buying Gold Stocks is the Contrarian Move Once Again
Warren Buffett said, “In the short run, the market is a voting machine but in the long run it is a weighing machine” [and] right now the market is voting against gold.
Gold stock valuations are indicative of the market’s declining confidence in gold. The growing fear in the markets is sending “hot money” out of gold – and the thousands of newly-minted gold bugs are running for the exits right along with them.
Despite the down-swing, the current correction and any further correction will only strengthen the fundamentals for gold. The long-run outlook for the dollar isn’t any stronger, the Fed has signaled it’s not going to raise interest rates anytime soon and if the markets turn sour the Fed has laid the public relations groundwork to launch QE3. [In addition,] the recent “safe haven” rush into treasury bonds has pushed interest rates down and real interest rates even further into negative territory.
Although there’s no way to tell exactly when the current correction will bottom out, if history is a reasonable guide, it will show once again that the window to buy gold stocks is open – right NOW.
- Your Gift For 2011: The HUI Is Going Up 70% In The Next 5 Months! https://munknee.com/2010/12/your-gift-for-2011-the-hui-is-going-up-70-in-the-next-5-months/
- HUI Stocks About to Kick Up Their Heels! https://munknee.com/2010/12/hui-you-aint-seen-nothin-yet/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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