gold mining companies - With the Stock Market Panic behind us - for now - we are settling in for a range bound, relatively calm, second half of ’08. Gold mining companies should finally start to benefit as the wet blanket smothering equity markets lift.
The New York Stock Exchange indicator for new lows reached an extreme of 1304 on Tuesday the 15th of July. That was even worse than the 1100 new lows reached on the 22nd of January. Such extremes spell one thing P-A-N-I-C.
Whilst it’s difficult to infer any far reaching conclusions about one day sell-offs, even panics, the odds now favour a bounce in very oversold equity markets. As for how high and how long the stock market will bounce is anyone’s guess, but here again, probabilities favour the market to move higher and longer than anyone expects so that sentiment indicators return to their old complacent Bullish state!
What will work during this period of ‘relative’ calm?
We had noticed a very definite flight to safety since market volatility began in October ’07.
Firstly, a flight away from common Dow stocks to Gold Mining Stocks because gold is seen as world wide currency which is more secure that worthless paper money. The Dow stocks have slowly been decreasing in value for the past year as gold mining stocks have been increasing in value overall. Gold mining companies is were the smart money is moving into.
Within the Gold market this has manifested itself as a flight to bullion and away from gold mining companies. Yes money had been moving gold stocks higher but the majority of gold investors are buying bullion or the gold bullion etf (actual gold bars) because it currently has lower risk than trading gold mining stocks. So gold bullion and the gold bullion etf's have been out performing the price of gold mining stocks for the past year even thought both Gold and gold stocks have increased in value.
Now that there is a good chance equity markets will stabilize, the above trends will moderate and reverse. This means gold mining companies prices should begin closing the valuation gap and discounting higher earnings based on $900+ Gold.
The remainder of 2008 looks set to be very bullish for Gold mining Stocks and Gold Stock Juniors in particular!
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