If we look at the fundamentals for gold such as supply and demand statistics, ETF’s among several things, it suggests to us that on a “non-timing basis” that gold is undervalued. Several weeks ago, Pierre Lassonde was interviewed by King World News and he could not have been more positive about gold’s future. We should add that nobody in the mining industry is more respected than Pierre! As the former CEO of Newmont and Chairman of Franco Nevada, he profitably ran the world’s major gold mining company successfully even when gold was in the $300 range. Above all, he has superb insight into the world’s gold fundamentals. Two years ago when gold was in the $1500 range, he projected a downside price target of around $1200 give or take I seem to recall $50. He missed by about $5! Amazing!
We strongly recommend visiting the Kingworldnews.com site to read Pierre’s comments. They appeared on March 26, 2015. Pierre pointed out in the King World interview that the large gold bullion buyers use the price weakness in gold to their advantage by accumulating the bullion that comes in for sale at cheap prices. In our opinion, the central bankers are given the task of buying gold bullion at the lowest cost possible. To these informed central bankers, low prices a tremendous buying opportunity when gold is “on sale.”
We should also add that a large percentage of gold mining companies are not profitable today due to the current low bullion price. A move to $1400 plus will create substantial moves up in the prices of many mining stocks. This price pressure on the mining stocks due to low bullion prices creates buying opportunities in many stocks that drop to levels that by several gauges are significantly undervalued. When the price of gold is substantially below the “all in cost” of production, for many companies such as those suffering today, their stock prices sink to exceptionally low prices.
Often many of the stock prices are less than the amount of cash per share a mining company has and at the same time giving valuations of merely $5 per ounce for companies’ gold in ground resources. Suffice it to say that low gold prices result in mining stocks selling far below reasonable values. However, for patient investors, it can create opportunities to pick up shares at cheap levels. Many times it has proven to be a superb buying opportunity which few investors ever take advantage of it.
What does technical analysis indicators suggest? If you examine the gold charts on a daily, weekly and monthly basis, it supports a positive fundamental outlook. The Relative Strength Index, MACD, Stochastics and Commitment of Traders show that more work needs to be done but a bottom on at least a time basis is now in process. Unfortunately, the technical analysis can be unclear and misleading as the gold market is so obviously being manipulated; that manipulation is ongoing for now.
Finally, what about the support and gold stock recommendations from the North American brokerage industry? The fact is that when we have a bull market in the industrial stocks such as the Dow Jones and Standard and Poor’s 500, at the same time we will not have a bull market in commodities such as gold and vice versa with a bull market in gold and commodities bringing with it a bear market in the industrial stocks. So the brokerage industry generally avoids recommending gold and gold stocks aggressively and it will not forecast major bull market in gold.
Bull markets in gold occur with bear markets in industrial stocks and bear markets in the major industrial stocks bring large losses in profitability;losses in profitability are something the major brokerage industry cannot accept nor can it afford.
Our advice is the same, do your homework, be patient and insist on value. It will work. Thank you, K.C. Grainger and Bob Pellerin
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