As we near the end of May, it’s been an underwhelming month in the gold market.
The price of gold entered Wednesday trading virtually flat for the month. The yellow metal is currently off nearly $10 per ounce today sitting just above $1,700 per ounce.
It’s been a better month for silver, with the price up over 12% on the month. Silver is currently trading above $17 per ounce.
All in all, a sideways month for precious metals.
While some pessimists have cautioned to expect “seasonal weakness” in metals prices over the short term, the coronavirus pandemic has disrupted seasonal patterns.
In the West, sales of physical precious metals have been limited by supply bottlenecks. In eastern nations, national lockdowns have taken a severe toll on demand.
As supply constraints start to ease in the West and demand constraints ease in the East, the result should be a significant uptick in metals sales over the coming months.
Meanwhile, the extreme monetary policies of central banks continue.
The downside risk to mainstream equities (particularly in the U.S.) continues.
Economic and geopolitical tensions between the United States and China are ratcheting higher by the day.
For all of these reasons and more, most analysts expect the precious metals rally to continue to have legs.
Investor sentiment for gold mining stocks supports this prediction.
While the price of gold has been flat, large cap gold mining stocks have continued trending solidly higher. But don’t look at these mining stocks as being expensive.
This comes in the context of gold (and silver) mining companies
trading near historic lows in comparison to metals prices.
The HUI is a popular index of leading gold mining stocks. As the chart above indicates, valuations of these stocks versus the price of gold have bounced off of the near all-time low in March. But historically these stocks are still very cheap.
This also indicates a sector that is just beginning a new rally (after building a multi-year base).
Gold mining stocks leverage the price of gold. But in recent years of bear market conditions, they have been laggards. Thus the recent outperformance of these stocks versus the price of gold is suggestive of a sector that is just now entering bull market conditions.
The metals themselves are still cheap – especially silver.
The mining stocks are still historically cheap.
Opportunity knocks.
