The best times to buy low are when sectors are forgoten and not
popular but its peak bearishness occurs right before they soar.
Smart investors buy low when bearishness peaks, they totally
know to not miss the greatest opportunities to multiply wealth.
Most investors have forgotten gold stocks even exist, and the
small minority that’s aware of them has spent all year working
to convince themselves gold stocks will never rally again.
This prevalent worldview today is shockingly dumb, as all
markets perpetually flow and ebb.
Extreme hyper-bearish lows in market cycles are
the best times to buy!
The only way to successfully invest is to buy low
then sell high, and what better time to buy low than when
universal bearishness has left a sector radically underpriced?
Buying cheap requires being brave when others are afraid,
the core tenet of contrarian investing. If you lack the courage to buy when few others will, you will
be forever doomed to buying high after stocks are already
popular and that’s the recipe for failure.
Gold stocks generated vast wealth for smart contrarian investors
over a decade-plus span when little else did.
Undervalued gold stocks will absolutely rise again from today’s
brutal depths, as they are cyclical like everything else
in the markets.
Gold is a totally unique asset class that investors have
demanded for thousands of years for wealth preservation,
essential portfolio diversification, inflation protection, and
As gold rises and gold stocks follow, eventually investors
grow greedy and ultimately euphoric which drives massive gains.
This leaves gold stocks too expensive relative to gold,
so they correct.
From time to time these healthy corrections snowball, leading
to extreme fear and despair and far-too-low stock prices.
These cycles are readily apparent in this simple chart.
It superimposes the flagship HUI gold-stock index in blue
over the gold price in red over the past decade or so.
Both vertical axes are zeroed, so the close relationship between
the gold miners and the metal which drives their profits and
thus ultimately stock prices is not distorted.
Gold stocks are now languishing near a radically-undervalued
major cyclical low.
The greatest bargains ever found in the markets occur when
blood is running in the streets, when everyone else
is scared out of the gold sector. Between its brutal stock-panic lows of late 2008 and its
subsequent greedy top in late 2011,
the HUI blasted 319% higher over a 3-year span.
This performance was incredible, the general stock markets
as measured by the benchmark S&P 500
only rose 40% over that span. The investors who fought their fear and chose to
buy cheap gold stocks earned fortunes, while the investors
sitting on the fence missed most of the gains.
Note in the chart above how closely the gold stocks
followed gold in that giant post-panic upleg.
Rising gold prices lead to rising profits for mining it, and
ultimately in all the stock markets profits drive stock prices.
Since building any gold mine is so incredibly capital-
intensive, essentially most costs are fixed at the mine build.
Thus the vast majority of rising gold prices translate directly
into higher profits for mining.
2013 proved to be another extreme anomaly like 2008’s stock
The Fed’s QE3 campaign led to levitating general stock markets,
resulting in a mass exodus of capital out of the gold stocks
to chase general stocks.
This resulting unprecedented POG bullion selling pushed gold
prices lower, eventually triggering a couple of ultra-rare
futures forced liquidations. So gold plunged in Q2.
That was actually gold’s worst quarter in something like a
century, wildly unprecedented in modern times.
Even though market history is crystal-clear, after extreme
selloffs come extreme mean-reversion rallies, gold-stock
traders freaked out.
They sold and sold and sold gold stocks, forcing their prices
far lower than gold warranted.
You can see the huge disconnect today in this above chart, the
biggest of this entire secular bull by far.
Much like during 2008’s stock panic, gold stocks plunged far
faster than gold earlier this year.
While gold dropped back to levels first seen in late 2010, call
it a $1300 midpoint, the HUI plunged to levels first seen way
back in late 2003!
The problem is this is a massive, crazy fundamental disconnect.
Back then the prevailing gold prices were only around $400 per
For silver stocks, silver was only near $5.25.
Is it rational or logical for gold stocks to trade at the same
place they first did when gold was less than a third of its
Profits ultimately drive stock prices, and many of the elite
smaller gold miners I prefer to invest in are trading between
7x and 14x earnings today.
These price-to-earnings ratios are exceedingly cheap,
especially at the low end.
Stock prices are disconnected from profits.
In times of extreme bearishness, investors seek to rationalize
their irrational emotional biases.
So they look for excuses to make them feel smart for believing
the popular bearishness and selling low.
One of these rationalizations today is that gold miners can’t
That blows my mind!
ure, some on the high-cost side are struggling. But the best operators like
Caledonia Mining is thriving even in this dismal environment.
Seeing gold stocks at 2003 levels while gold trades at 2010
levels is fundamentally absurd, even more extreme than the
stock-panic anomaly that led to gold stocks more than
quadrupling in the subsequent years.
Provocatively, there is even more in common with those earlier
Back then after plummeting 71%, the HUI formed an extreme-fear
secular support line.
That was just hit again this year!
As of its brutal 2013 lows in late June, the HUI had plunged
a similar 67% in just under 2 years.
And it just happened to bounce right at that extreme-fear
secular support line defined by 2008’s stock panic.
In each of the previous two major-upleg cycles where extreme
fear gradually morphed into greed,
gold stocks more than quadrupled.
There is no reason at all they won’t at least
quadruple again in the coming years.
As always, gold is the key.
Because of the epically-anomalous third quantitative-easing
campaign by the Fed, the general stock markets inexorably
levitated this year as traders assumed the Fed wouldn’t let
This crushed demand for alternative investments including
gold, leading to professional money managers abandoning it
to chase general stocks.
So American gold investment demand plunged this year.
But can a unique asset that has been in high demand from
investors worldwide for thousands of years be knocked out
of favor forever by one anomalous quarter?
Not a chance.
There is no doubt investment demand for gold will recover and
thrive again, as it too is cyclical like everything else
in the markets.
After such an extreme depth of out-of-favorness,
gold investment will mean revert and
overshoot to being greatly in favor.
And as long as investors demand gold,
the miners who supply it will be highly valuable.
Thus there is zero doubt 2013’s gold-stock anomaly
will soon unwind, that capital will flood back in and
bid this radically-undervalued sector far higher
to reflect its underlying fundamental reality.
The only question is whether or not you have the courage
to make this high-probability bet that is
very likely to quadruple your money.
The real gold show is only starting - right on -
Next week GOLD explodes -
China is back from -
The "National Day Golden Week"
begins around October 1st for about one week - Why $50,000 Gold? http://www.jsmineset.com/2013/04/19/why-50000-gold/ Caledonia Mining - Cheap Is Its Own Reward -
Nice Caledonia Mining SA article here.... http://seekingalpha.com/article/1720432-caledonia-mining-cheap-is-its-own-reward?source=email_rt_article_readmore http://www.caledoniamining.com