AAM 0.00% 2.0¢ australian industrial minerals limited

eyes wide shut

Currently unlisted. Proposed listing date: WITHDRAWN
  1. 559 Posts.
    Guys, wake up!
    1 mio oz in the ground, this is 1 billion IGV!!
    More on Gold Stocks Versus Gold Bullion Wake up!

    Another way to view the situation is to compare the price of gold with the average valuation being assigned by the market to the in-ground resources of junior gold mining companies. This exercise has been done by Canaccord and it shows that since 11th October last year the rise in the gold price from $750 to $900 was accompanied by a 30% DECLINE in the average market value of the junior mining sector's in-ground gold resources. From a valuation perspective this would only make sense if the average in-ground gold resource had been dramatically over-valued to begin with or if the rise in gold's nominal price had been associated with a decline in gold's real price (gold's price relative to other investments and tangibles). Neither of these is true, so should we conclude that the gold sector's performance simply doesn't make sense?
    The stock market's habit of shifting from one valuation extreme to another creates excellent money-making opportunities, but you won't be able to take advantage of these opportunities if you blindly assume that the market is right or that past trends will continue. The market is like an emotional pendulum -- the further it swings in one direction the closer it comes to swinging back in the other direction.

    Applying the pendulum analogy to the relationship between gold stocks and gold bullion, the best time to be intermediate-term BEARISH on gold stocks relative to gold bullion is following a lengthy period during which the stocks have been STRONG relative to the bullion and the emotional pendulum has reached an optimistic extreme (extreme optimism about the prospects of gold stocks), as was the case at the end of 2003 and during the first half of 2006. By the same token, the right time to be intermediate-term BULLISH on gold stocks relative to gold bullion is when the pendulum has reached the opposite extreme (extreme pessimism about the prospects of gold stocks) in response to a lengthy period of UNDER-PERFORMANCE by the stocks, as was the case in 2000-2001 and May-2005, and as is, perhaps, the case today. The point, in a nutshell, is that the best time to buy gold stocks is after they have been beaten down to the point where they are very low relative to gold and the majority has become convinced that the metal is the better investment.

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