The September rally in gold-mining stocks is already impressive: The group is up 14% month to date and 28% since the beginning of August. Over the same period, the SPDR Gold Trust(GLD) is up 4.5%, and nearly 10% since early August. That’s a reverse from several quarters of mining stocks trailing well behind the metal. As posted on Barrons.
Weeden & Co. strategist Michael Purves sees another rally in the works. He expects the Market Vectors Gold Miners ETF (GDX), which is up nearly one percent to $54.81 Wednesday, to reach $60 by December even if we see a mininal advance for gold. The reason: From a technical perspective, the trend of gold miners’ extreme underperformance versus the metal appears to be broken:
The gold/GDX ratio has been unusually elevated over the last several quarters, as gold has dramatically outperformed equities. We believe this metric has topped out and is poised for steady declines in favor of the GDX. … [A] small decline in [the implied GDX price as a function of gold prices] is actually more important than a major move in gold prices in terms of price realization. During much of 2010 and 2011, this ratio was at 25 or below. Recently – this ratio topped out at close to 40, a level approaching the all time extremes during the Lehman Brothers crisis…. This ratio has taken out support at ~34. Currently at 33, we are targeting 29 as our near term target ratio. Our near term objective for this ratio is 30 – a level that would imply nearly $60/share for the GDX with minimal increase in gold price.
The firm also has fundamental reasons to like the group lately:
During the last quarterly earnings season, most of the major miners missed on production and costs (nonetheless, virtually all of these stocks immediately traded higher subsequently). The most important developments during this season were the board directed actions of replacing CEO’s (Barrick and Kinross). These boards are effecting a key strategic transition away from large capital projects and towards generating free cash flow to their shareholders. The largest miners have quadrupled their capital expenditures over the last four years – a huge ramp up that facilitated the massive misses in production and costs that have become a hallmark for investors dissatisfaction. We expect more companies to solve for capex discipline, high dividends, and in turn reverse the negative sentiment in these equities.
Have a good one.
Regarding www.skoptionstrading.com. We are pleased to inform you that we have now achieved more than a 500% return since inception.
If you wish to join a winning team then please become a subscriber via this link:
Our model portfolio is up 505.98% since inception
Our trading success rate is 91.30%
95 profitable trades out of 104.
An annualized return of 78.31%
An average return of 35.55% per trade
Our annual performance figures are as follows:
2009 We made a profit of 23.89%
2010 We made a profit of 158.66%
2011 We made a profit of 40.95%
In 2011 we outperformed:
S&P by 42%
HUI by 53%
Gold by 31%
Silver by 41%
The 2011 Annual Report by be accessed via this link.
Also many thanks to those of you who have already joined us and for the very kind words that you sent us regarding the service so far, we hope that we can continue to put a smile on your faces.
To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 2007
If you are new to investment in the precious metals sector then you may wish to subscribe of our FREE newsletters regarding gold stocks, silver stocks and uranium stocks, just click on the links and enter your email address.