Gold sector labelled an 'extreme contrarian investment opportunity'

8th June 2018
Resources Rising Stars

The gold sector may have improved in recent years but a new research report lays out why gold miners are still under-supported on the world’s stock markets (reports MiningNews).

Gold bulls extraordinaire at Incrementum AG have laid out a major case for gold company investors to make big gains over the next few years in their latest, ‘In Gold We Trust' report.

Gold hit its 2018 low of US$1290 per ounce in May after climbing to $1358/oz in late January.

Incrementum duo Ronald-Peter Stöferle and Mark J Valek said they were confident the yellow metal's price would soon spike and miners would reap the rewards of financial discipline brought on by the downturn.

"Our confidence is bolstered by the fact that there are very few market sectors at this time that the broad investment community is underweighting as much as the gold mining sector," Stöferle and Valek said.

"This is made obvious by the fact that precious metals stocks are veritable midgets in terms of market capitalization.

"Based on this we expect that the mining companies - and their long-suffering shareholders - will reap a rich harvest in coming years after the long dry spell they have had to endure."

This "underweighting" was shown in mining stocks' performance compared to the S&P 500 and also their level relative to the gold price, the report said.

"If one looks at the gold mining shares in relation to the broad stock market, it becomes evident that the gold sector has been subject to profound scepticism since 2011," the report said.

"The XAU/SPX ratio currently stands at the same level it inhabited in 2001, when gold was trading at $300 per ounce and the last great bull market in gold stocks began."

But this bullishness is not a mainstream view, the report finds: Google searches for gold mining companies are the same as 2009 or the end of 2015, therefore "the mining sector definitely deserves to be called an extreme contrarian investment opportunity".

In the coming months, Incrementum said "strong summer rallies" could see gold break through $1375/oz to $1500/oz, and silver could hit $26/oz.

The US crash predicted in last year's edition didn't come (despite the massive February selloff) but Stöferle and Valek have maintained their scepticism about the viability of current "euphoric" market highs partly because of debt in the US and China rising to unsustainable levels.

"The likelihood of the boom turning into a bust is high - much higher than the mainstream expects," Stöferle and Valek said.

"We therefore anticipate a significant global economic dislocation with a substantial effect on the gold price in the coming years."

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