Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Best Time to Buy Gold Stocks in Years

Commodities / Gold & Silver Stocks May 12, 2011 - 02:31 PM GMT

By: Q1_Publishing

Commodities Best Financial Markets Analysis ArticleThe precious metals correction is here. Gold and silver are down 4% and 30% respectively. Gold and silver stocks, as should be expected, are down even more.

But here’s the thing, precious metals stocks have been hit much harder than they should have been.

Right now is the best time to buy gold stocks in more than two years as a result. And they’re poised to make another run of 30% in the next few months. Here’s why.

The Time to Buy Gold Stocks

At the risk of stating the obvious, the relationship between gold and gold stocks has always been a strong one. Only during liquidity crunches or the height of speculative booms has the relationship reached extreme divergences.  

Since the market bottomed in March 2009, however, gold and gold stocks have run very closely together. In the last 26 months gold is up 60% and gold stocks, as tracked by the Market Vectors Gold Miners ETF (NYSE:GDX), are 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 two years.

The chart below shows what I mean:

The chart 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.

Right now, the ratio is at its highest point since April 2009. That means it’s 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.

Because of this activity, the 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:

The table shows the biggest moves in gold stocks over the past two years relative to gold prices.

These moves accounted for all of the gains in gold stocks in the past year.

Most importantly, each one of those moves came in the months immediately following the point at which the Gold/GDX ratio reached the same level it right now.

Buying Gold Stocks is the Contrarian Move Once Again

That’s why right now is the best time to buy gold stocks in the past two years.

Warren Buffett said, “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

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 downswing, 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 (although it will surely have a new name by that time).

Finally, the recent “safe haven” rush into treasury bonds has pushed interest rates and 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.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2011 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in