Gold Mining Stock Tips: Why The Time Is Now

Gold mining stocks have proven their value once again in comparison to gold itself in the past few months. During the most recent correction of the precious metal, gold mining stocks barely moved. This indicates that investors are no longer willing to let go of their gold mining stocks, despite the lower gold price.

Gold and silver had a very strong start to the year: the gold price increased by $100 and the silver price by $3. These last few weeks, however, gold and silver had to give up practically all of their gains; gold and silver mining stocks are a completely different story.

Gold and silver stocks typically respond stronger than the precious metals themselves. When the gold price increased by 204% between 2002 and 2007, gold mining stocks increased by 547%, a factor of 2.7x. But that leverage goes both ways: while the gold price dropped by 41% from its 2011 peak, gold mining stocks fell by 77%, a factor of 1.8.

Just like the financial markets, however, the gold sector also has its quirks. If you look at the period from 2008 to 2014, the gold price was still up by 44% while gold mining stocks were down by 60%.

Gold Mining Stock Tips: The Lower Oil Price Is Creating More Leverage

During the mid-December till mid-January rally, the gold price increased by 12%. Gold mining stocks increased by 37%, which equates to 3.1x. Things become more interesting when you look at the recent correction. The gold price is down by 8% these last few weeks and gold mining stocks… also by 8%! This also means gold mining stocks increased by 26% since their lowest level on December 20th, while the gold price itself only went up by 3%, which equates to a factor of 8.7x in the last two months.

Gold mining stocks are not chasing the drop in the gold price and that is a very important development. Investors are no longer convinced, it seems, that the correction in gold (and silver) will be strong. Additionally they find gold mining stocks undervalued. The low oil price has increased the margins for gold mining companies, which makes their case even stronger.