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Old 04-20-2012, 04:56 PM   #1
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Lightbulb [Chart] XAU index/gold ratio shows insane undervaluation of miners

Chart by James Turk:

Quote :
I want KWN readers to take a look at the following 30 year chart, which I believe is the most important and extraordinary chart for 2012. It presents the XAU Gold Mining Index measured in terms of gold, not dollars:
We’re making history here. Gold stocks have never been this undervalued before. We’ve had a 12 year bull market in gold, but we’ve also had a 15 year bear market in the mining shares that began with the Bre-X collapse.
It’s very rare in market history to see an outlier like this. This is an extraordinary event. Years from now we are going to look back and shake our heads in disbelief at how undervalued gold stocks were in 2012.
This 15 year downtrend and historic low has effectively destroyed the morale of virtually the entire gold mining investment community. Psychologically, this has also had a tremendous dampening effect on the morale of those watching the gold bullion market.
We’re living in pretty tough times, Eric. We all know the global economy is not doing well. We see all of the problems that governments are trying to solve, but they are not coming up with viable solutions. To make matters worse, the above chart is an illustration of the psychological onslaught that people who buy the mining shares have had to endure.
This is part of the warfare against those in the gold community. It is important to remember that before this is over, the mining shares will be trading like internet stocks. Quality gold shares will be the Apple Computer’s of tomorrow.”

My take: One thing should be added. Cash costs per ounce have been going up for the miners lately, so part of the decline of the ratio can be attributed to this as profitability of many miners didn't rise as fast as the gold price . However, the current levels are so extreme, miners are clearly undervalued.
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Old 12-15-2012, 07:58 AM   #2
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Miners are still as cheap as they could get relative to the metal:
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Old 12-15-2012, 10:40 AM   #3
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I also believe Au and Ag stocks are very undervalued. 2013 will be a very good year for PM stocks as the metals will rise to new highs.
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Old 12-15-2012, 12:43 PM   #4
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I agree on your take & I think that the interesting chart would be the one that shows '# of goldgrams needed to mine one goldgram' from 1986 to present.

To my amateur eye the price of gold relative to stocks might not be so relevant? I think gold miners are buys relative to their profitability not the price of gold.

If gold was at $10 000 an ounce, gold stocks would look even more undervalued but if the cost to mine an ounce was $11000 then they would be a bad buy no?

It looks like a reason to hold gold and not gold stocks.

If PM's are possibly being slightly suppressed, then it makes sense that miners input costs could be rising faster than the gold price which means gold stocks will continue to be less and less profitable.

However unlike the miners, as an owner of gold you like rising input costs because it creates a higher and higher floor for the gold price. I mean if demand already exceeds supply and supply can't be mined for less than whatever it is - say $1300 an ounce then you have a limited downside. (+ the input costs will rise 1. with the real not fake rate of inflation and 2. Will rise even faster than inflation as the cost of mining lower & lower ore grades will continue to make new mined ounces even more expensive.)

Last edited by Unbeatable; 12-15-2012 at 01:52 PM.
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