Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Gold Stocks the Cheapest Ever?

Commodities / Gold and Silver Stocks 2015 Apr 24, 2015 - 12:05 PM GMT

By: Jordan_Roy_Byrne

Commodities

Everyone knows that this has been a devastating bear market for the gold mining sector. If you have followed our work you know that it is the second worst cyclical bear market in at least 80 years. Obviously, gold mining stocks have been crushed. Then they became cheaper, then cheaper and then really cheap. Yet, we may not realize just how cheap this sector has become both in nominal and relative terms.

Below we plot the Barron's Gold Mining Index (BGMI) against Gold. The BGMI dates back to 1938. The ratio recently touched its lowest level in at least 77 years! There might not be anyone alive today who has seen gold stocks this cheap relative to Gold.


Barrons Gold Mining Index versus Gold

The next chart plots the price to cash flow valuation for senior gold miners. Twice in the past two years it touched a low of about 5. According to data from BMO, this is even lower than during the secular bottom of 2000 when senior miners traded at 6x-7x cash flow.

Gold Miners versus Price-toCash Flow Ratio

Gold stocks are also historically cheap relative to book value. A year or so ago I posted a chart from Datastream, a product of Thomson Reuters that showed gold stocks trading at their lowest book value since at least 1980. You can view that here. Here is another chart which shows the price to book ratio for the 10 largest miners. It is unsourced but shows price to book value at the lowest levels since at least 1993.

These spectacularly low valuations have resulted from arguably the second worst bear market ever. The updated bear analog chart is below.

Gold Stock Bear Markets

Could gold mining stocks get even cheaper in the weeks or months ahead? It is certainly possible, but only in the scenario of Gold trading to new lows. Even in that scenario, there is no guarantee that the various gold miner indices will make new lows.

While we lack data that precedes 1980, my guess is gold mining stocks relative to cash flow and book value are trading at valuations not seen since 1960 (a secular bottom) or even earlier. In the year 2000 the gold stocks were at the end of their worst cyclical bear market in history (and worst secular bear) and were trading at a 24-year low! Valuations recently surpassed (to the downside) where they were at that epic low.

In any event, the gold mining sector is primed for what should be a spectacular recovery. A big rise in margins/earnings and valuations is the one two punch that causes markets to rally substantially following a major bottom. Margins are starting to recover as evidenced by Newmont Mining's earnings report. Miners have worked to cut costs and are now getting a boost from lower energy prices and weak local currencies. The only thing left is for metals prices to turnaround.

Consider learning more about our premium service which includes a report on our top 10 juniors to buy for the coming bull market.  

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in