Over here in the Benelux — that is Belgium, the Netherlands and Luxembourg combined — Smart Money Europe is known for its ‘out-of-the-box’ statements on various asset markets. As independent analysts, we can openly and freely speak our minds, which is still a rare phenomenon in financial circles.
Back in the days (over 5 years ago), our future price targets for gold and silver were downright shocking for most investors. We told readers that gold would propel towards $5000 per ounce, while silver could eventually go parabolic up to $300/ounce.
Back then, these kind of predictions equaled blasphemy! Today, with gold prices tripled and the price of silver almost fivefold, our goals for both metals sound less off the map, even though our silver targets still make people frown.
Being astute investors, nothing seems to surprise us anymore with the current financial mess our political and monetary ‘leaders’ got us into. If they keep kicking the can further down the road, i.e. flooding debt with even more debt, we will soon find that our primary targets for gold and silver could be too conservative!
But that’s not the most urgent problem on our minds.
Lately, something else is bothering us in the gold and silver segment. We already pointed at the mismatch between gold and gold stocks.
We dug a little deeper and found that the current weight of the gold and silver sector in the total market was completely negligible. Even with precious metal prices multifold, gold and silver mining shares are only a small fraction of the most important indices.
Take for instance the S&P 500, the bellwether among global stock indices. A recent snapshot of its composition shows there are only 2 companies included within the gold ‘sphere’. We want to emphasize ‘sphere’, as Newmont Mining and Freeport-McMoRan Copper & Gold are not exactly what you can call pure gold and/or silver plays.
They only account for 0.4 percent of the total S&P 500! This, of course, doesn’t correspond with reality. An important sector like gold and silver, in the midst of a secular bull market, should get a much larger weighting.
That’s why we believe that gold and silver stocks will make up for 10 percent of the S&P500 when gold will be crossing the barrier of $5000/ounce! As our modeling has shown, we should be reaching this price target for gold by 2015.
Currently, the sector ‘materials’, in which the 2 mentioned stocks are included, makes up for only 3.53% of the S&P 500.
Our newest bold prediction is getting support from respectable insiders.
Rob McEwen, an icon in the gold arena, recently called for a merger of two mining companies, in which he holds a significant stake. By merging, a powerful low-cost silver group would arise, but more importantly, McEwen sees a good change to enter the S&P 500 three years from now!
As we have been in support of McEwen’s company, with a firm ‘Buy’ recommendation, we can only applaud these kind of actions taken to create more shareholder value in the gold space.
So even insiders like Rob McEwen expect a big wave of institutional demand for gold and silver mining stocks in the months and years ahead. Don’t be fooled out of these ‘jewels’ by the haters in the mainstream media. On the contrary, make use of the current sell off to put some money at work in the gold and silver complex: contrarians will be richly rewarded!