The fireworks in the gold market were a few days late. Today gold solidly pushed above long-term resistance (in USDs) at $1,800, currently trading at $1,813.10.
The price of gold has already set new record highs in all other currencies.
The price of gold is above $1,800 per ounce. Fundamental drivers could not be stronger.
- record low interest rates
- unprecedented economic uncertainty
- geopolitical instability
- inflation fears
Where does this leave gold (and silver) mining stocks?
Gold stocks were already in a clear rally, as shown in the chart below of the Vaneck Vectors ETF Trust Jr Gold Miners ETF (US:GDXJ).
GDXJ is one of the most broadly representative gold mining ETFs. It has not only recovered all of its losses during the March panic but has clearly broken above its trading range.
Yet while gold is at an 8 ½-year high, gold mining stocks are still cheap. We see this clearly in a long term chart of the HUI (gold mining) index versus the price of gold.
The explosive rally in gold mining stocks from 2009 – 2011 is still vividly remembered by mining investors. There were ten-baggers all over the place.
Stocks began that rally with the HUI to gold ratio at an historical low, dipping to nearly 0.20. Then came the bear market for gold mining stocks from 2012 to 2019.
It was the Great Depression for the gold mining industry. The
HUI to gold ratio bottomed at ~0.05. In March, the ratio bottomed again just above that incredible extreme.
This is the “base” from which gold mining stocks began the current rally: cheaper versus the price of gold than at any other time in the history of the trading of these stocks.
Now, after these mining stocks have clearly broken out into a new rally, how “expensive” are they?
With the HUI to gold ratio sitting at 0.169 today,
gold mining stocks are roughly 20% cheaper today than they were during the worst of the panic in the last Financial Crisis.
The bubble in mainstream U.S. equities is now an open joke. Mainstream media mouthpieces pretend that U.S. equities prices somehow reflect the “V-shaped recovery” mythology that continues to be promoted by both Wall Street and Big Media.
In the real world, with U.S. trading multiples already stretched to all-time extremes, everyone knows that the only thing propping up equity prices is the Federal Reserve’s money-printing madness and “liquidity” operations.
Gold mining stocks are currently outperforming these bubble markets. But unlike mainstream equities, even at current prices they are objectively inexpensive.
The set up today for gold mining stocks is very similar to the 2009 – 2011 rally with two key differences.
- Gold mining stocks are much cheaper than at that start of that rally (>20%)
- Fundamental drivers for the price of gold are much more bullish today than during the previous rally (where the price of gold reached its all-time high)
Imagine being able to jump into a market that is already pointing solidly higher, with all “technical” indicators at maximum bullishness. But stocks are still really cheap.
It’s an investors dream. This is the set up for gold mining stocks today.
And don’t forget about silver – and silver mining stocks.
Silver grossly outperformed gold in the last rally, as it always does in any true bull market for precious metals.
But silver began the current precious metals rally priced at an all-time low versus gold. The gold/silver price ratio reached 125:1, the most extreme ratio in the nearly 5,000 years that humanity has been using these metals in commerce.
Silver mining stocks are much less plentiful. At current give-away prices for silver, only the richest silver deposits on the planet can operate as primary silver mines. Well-run primary silver miners will outperform their peers in the gold mining industry.
As we have
said previously, a much more reasonable price for silver – today – is
$200 per ounce. Not $18.50. Try pricing these silver mining stocks at $200/oz silver.
The epic rally in gold mining stocks has been confirmed with gold’s breakout above $1,800. And as good as these stocks will perform, silver and silver mining stocks are going to do even better.
Back up the truck and load up.
