Gold mining stocks(GDX) are incredibly cheap at $1500 gold(GLD). Before the credit crisis in March of 2008 as gold hit $1000 an ounce, miners (GDX) hit its all time high of $55. Now three years later gold is 50% higher, yet the miners have barely been able to breakout of the $55 range. Yamana (AUY) and Kinross (KGC) Gold are two majors that have been significantly underperforming gold over the past three years and are not near their pre credit price levels in 2008. These stocks have not provided any leverage to the price of gold to their shareholders. Investors are sticking to the bullion etf’s and are disinterested in the miners. This lack of interest in this sector signals we still have some way to go in this precious metals bull market.
Currently mining stocks have corrected because of apprehension regarding the possible exit from QE2 and growing difficulties for miners worldwide. Investors who were burned during the 2008 credit crisis are concerned about a repetition of such an occurrence and its effect on a potential counter trend rally in the U.S. dollar (UUP) and long term treasuries (TLT). Small mining companies (GDXJ) depend on a readily available line of credit. Investors fear if the flow of capital were to be shut off as had been their experience in the past, their ability to operate might be impaired.
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