Is it time to buy Gold miners?
The precious metals mining sector was slammed with Gold’s sharp drop in prices in April. Mining companies are more “pie in the sky” than owning actual bullion, so mining shares typically move much more sharply than Gold does (see the figure below charting the price performance of Gold against the Gold mining ETF).
What’s interesting is that the Gold smackdown occurred just a few weeks before the Fed leaked that it was considering tapering its QE program. We know for a fact that the Fed has a tendency to leak critical information to its cronies and connected insiders. Looking at how Gold moved just a few weeks before the word “taper” was picked up by the media, one wonders if the Fed hinted what was coming to the connected few before the rest of us.
Regardless of Fed shenanigans, the Gold smackdown hit mining companies the hardest. As a result of this, numerous mining companies were trading at only slight premiums to their cash levels. With no debt on their books you were essentially getting their Gold reserves and infrastructure for free (provided there wasn’t too much political risk).
All you needed was for mining companies to bottom out… which looks to be happening now.
Definitely a sector to watch. Given the record number of Gold shorts outstanding, it the precious metal begins to pick up again, the rally could be absolutely explosive.
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Best Regards
Graham Summers