| The question I got more than any other at the recent Deutsche Goldmesse conference in Frankfurt was, “Why haven’t gold stocks responded to gold’s big run higher?”
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| I had two answers for them:
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| 1) The rally in gold had been so quick and dramatic that it took everyone by surprise. Investors felt they’d been left behind, and were waiting for a pull-back to get into the mining equities.
From the beginning of the move on March 1st, that break didn’t come until the third week of April.
2) No one really understood why gold was rallying so hard. We’d been expecting a Fed pivot to be the big catalyst, but that was being postponed ever further ahead.
If we didn’t understand what’s driving gold, we couldn’t get a feel for how long the move might last. No one wanted to jump in headfirst just before a big slam back downward.
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| The good news, I told these investors, was that these factors were already starting to change.
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| On that first point, I explained that the gold stocks had been leveraging gold’s move, even though most mining investors felt otherwise.
As you can see on the chart below, the ratio between gold and the GDX gold-stock index has generally fallen during the metal’s uptrend, indicating the gold stocks have been outperforming the metal.
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| Of course, even if the gold stocks have been outperforming, it’s fair to say that we would’ve expected a much more robust response.
But take heart...because I think a change is coming.
Consider our next chart placing the price trend of sector bellwether Newmont Gold atop the gold price trend.
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| Note that after gold had its big, $60 sell-off on Monday, April 22nd, it wasn’t long before Newmont Mining had its big 10% price jump.
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| Investors were taking advantage of the pause in gold’s rally to get onboard.
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| It makes sense that Newmont would be the first gold stock to enjoy such attention, because it’s the only gold stock included in the S&P 500. If generalists were going to take a position, they were going to start with Newmont.
But our first chart also shows a big outperformance in the GDX shortly after that big setback in gold. So investors were buying other equities as well.
All of this points to the fact that gold miners are still a great way to play this new bull market in gold and silver.
Yes, things are different today. Gold and silver producers have a lot more stock out than they did in the last bull run, and there are many other ways to get leverage to metals these days.
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| But gold stocks, particularly if you put in the time and effort to find the best opportunities, will offer the kind of torque to the metals that we want.
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| As for my second point, we’ve come to understand most of the drivers behind this gold move. They included central bank buying, Chinese demand from the PBOC as well as individual savers/investors, and speculators on the Comex and Shanghai Futures Exchange.
That isn’t all, however, in my opinion. I think there’s still some mystery behind a significant portion of the buying in gold. We don’t know who’s been providing the strong undercurrent of demand, but it seems like these buyers are serious, long-term players.
And that may be the best news of all.
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| Brien Lundin
Publisher, Gold Newsletter
CEO, the New Orleans Investment Conference
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| CLICK HERE to watch interviews by Brien Lundin and Kai Hoffmann with many of today's most exciting junior mining companies on the
Gold Newsletter Youtube channel.
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