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Miners Catching Up To Metals — Huge Run Coming?

by John Rubino on September 14, 2012 · 13 comments

Gold bugs are a generally happy bunch this week. But they’d be a lot happier if precious metals mining stocks kept up with the metals themselves. Since early 2011 the largest gold miners have underperformed gold by about 40%, while the junior miners have done even worse (I’m talking to you, Great Basin).

Thanks to this divergence between the metals and the miners, it was possible to clearly understand the monetary destruction endemic in the developed world, conclude that gold and silver were the places to be, make a decisive bet on this thesis — and still end up losing money.

There are two possible conclusions to draw from this: Either mining as a business has changed fundamentally and will be unprofitable forever – in which case we should just own physical metal and forget about paper proxies. Or the past couple of years were one of those inexplicable divergences from established relationships that produce huge gains when they snap back to normal.

The past month has offered a taste of what the second possibility might look like. The chart below shows that the big miners (represented by the GDX gold miner ETF, red line) have outperformed gold itself (the GLD bullion ETF, blue area) since July. But the two-year gap, like I said, is about 40%, so parity is still a long way off.

Now that the miners have some momentum, it wouldn’t be surprising if they made up this ground in no time at all.

Gold miners (red line) versus Gold (blue) since mid-June

Tagged as: currency crisis, gold, gold miners, inflation, precious metals, silver, silver miners

paper is poverty

Part of the reason for the divergence could be that metals bugs are generally pessimistic (i.e. realistic) about the future. We know that money printing solves nothing and problems have only gotten worse since 2008, so the prospect of another liquidity crash looms large for some of us. The US stock market is at levels I find ridiculous, so although I would like to own miners, I haven’t been able to bring myself to buy any in quite some time. That could explain why some retail investors like myself buy physical metals but not so much the miners.

I also wonder whether the South African headlines are helping to drive the recent rise in miners (and metals), since that began around mid August. The hedge funds and algos seem to be particularly sensitive to headlines.
Charles

The hate synthetic money creators have for precious metals causes them to naked short the miners. They want to shake the little folks out to prevent wealth from being transferred to them. They’re always about preventing capital formation outside their influence circles. There is a single identification for “they.” It’s “The Pilgrims Society” described at http://www.silverstealers.net
RUSS SMITH

Hi!, Patrons Of Dollar Collapse Et El:
I own a lot of gold shares & these low prices are a gift in time to buy low and, when the lift off over the next 10 – 12 years manifests unavoidably, nobody knows where their prices are headed in worthless, paper fiat based purchasing media backed by debt those owning mining shares don’t have. If it weren’t for the miners clear back to the original gold rush days there wouldn’t be ANY above ground gold bullion stocks to own by anyone would there? Gold stocks may be titled a mere “proxy” as stated in this article but those seemingly worthless slips of paper are the frugle guts of every successful mining operation that’s ever existed. Someday, it will be more apparent that OUR entire Country’s economic condition would have been many fold better off, if all the QE money including the TARP bailout funding woud have been invested in the production of additional gold by OUR underfunded miners. With the Swiss Basal 111 accoard mandating that all banks have at least 6% of their reserve assets in Tier 1 gold, these same banks better learn to appreciate who it really is that can help them meet their Basal 111, Tier 1 assets goals funded by those proxies too!!! Let some bankers take their picks & shovels to a mining operation to dig out the gold they are required to hold under the Basal 111, Tier ! accord and see how long it will take them to fill their present gap regards their gold holdings? The bet is of coarse they don’t do that kind of grunt work but, if they did, their success would be measured in many decades wouldn’t it & not a couple of years or so would it? The time is coming when those of us holding mere proxie gold shares will receive OUR due rewards for doing OUR many hours/days/months/years of due diligence.
RUSS SMITH, CALIFORNIA (One Of The Broke States)
resmith@wcisp.com
http://www.pocketinfo.net/ Robert Latchford

The gold stores in the shops and malls seem to be picking up in business volume again. The margins they operate in are horrible – steer clear.
stymie

Although I’m a gold/silver bug, my happiness is tempered with the knowledge that PM prices are a barometer of the health of the currency, and that billions of people are going to be flattened in the coming years by the actions of the central bankers.
- http://www.callinex.ca/ Callinex Mines Inc.
  
  That’s what we’re thinking. Sadly.
Willy1964

Is one John Rubino still drinking the “(Hyper-)Inflation” kool-aid ? Never heard of a thing called “Deflation” ?
- http://www.callinex.ca/ Callinex Mines Inc.
  
  It’s a real thing…
http://goldinvestingnews.com/ Gold Investing News

We’re going to do a big story on this early next week if you guys want to check it out. https://www.facebook.com/pages/Gold-Investing-News/386640988069845
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disqus_yqeotfOrSf

“TRQ’ is the ticker for Gold Bugs to watch in the very near future!
Lou

A good way to play this is Market Vectors Gold Miners Index ETF (GDX). Its been doing well, but if the author is right, is just getting started.
Barry Murray

Thank you so much for being on the side of small supply side miners when it come to trying to fighting the illegal mining finance cartel causing such havoc for the “little people” North Americans, as described at http://www.silverminingclaims.com