Gold Stocks Haven't Even Begun to Soar
By Dr. Steve Sjuggerud
Friday, May 22, 2009
Yesterday, I spent an hour and a half with two of the most experienced gold investors on the planet...
It was a bit by accident... I was at a private two-day meeting on the Eastern Shore of Maryland, and I needed to leave early to get to the Baltimore airport. Both Van Simmons (my good friend and a legend in the coin world) and ace gold-stock analyst John Doody needed to be at the airport too, so they hitched a ride with me.
At the meeting, John had told us gold stocks will "surprise on the upside" this year. In short, if you don't own gold stocks now, you need to buy. Let me share John's reasons why...
The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.
Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.
Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.
So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.
John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.
In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.
Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.
So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.
If you haven't bought gold stocks yet, you should. And if you want to get the complete picture on gold stocks, then you should get to know John Doody.
Good investing,
Steve
P.S. John has written Gold Stock Analyst for over a dozen years. He delivers the objective truth every month, covering 75 precious metals stocks. His "Top Ten" list has an incredible track record of success. For more on John's letter, click here. |
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THE BIGGEST TREND IN THE WORLD RIGHT NOW
Question for DailyWealth: "You guys are always looking for the 'big trends'... So what is the big trend I can get into right now?"
Answer: As the great trader Ed Seykota once said, finding a trend to trade is often as simple as placing a chart on the wall. If you can see the trend from across the room, you have a trade to make.
The "across the room" trend in place right now is the one in real money. And by "real money," we mean gold. Gold rises when governments try to spend, tax, and print their way to prosperity... when people get to thinking they can live at the expense of their neighbor. But as another great thinker once said, "There ain't no such thing as a free lunch." Free lunches must eventually be paid for by printing fake paper money... which dilutes the value of your bank account... which makes people flee into real money.
Today's chart shows the past eight years in gold. As you can see, this is one of those "I can see it from across the room" trends. Your biggest risk here is that the U.S. government wises up and runs an honest system. That's a risk we'll take all day...
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A surge in optimism on global economic growth prospects has created "bubble-like levels" in emerging markets, according to Merrill Lynch.
In a monthly survey published by the investment bank on Wednesday, Merrill warned that optimism on emerging markets was "extreme" and said investors in those markets would be more vulnerable to bad news than in other regions.
A net 46 per cent of the 220 fund managers surveyed – who together oversee about $617bn – said they were overweight on emerging markets, up from 26 per cent last month and the highest reading since October 2007.
China, which has seen its main Shanghai Composite index rise by 45 per cent this year in local currency terms, was by far the most popular of the emerging markets among investors.
– Financial Times
Hong Kong billionaire Li Ka-shing, chairman and founder of the city's second-largest property developer, warned investors to "be careful" when buying stocks owing to concerns about economic growth.
"Recovery in the stock market usually comes before the economy, but it's not every time," said Li, who is known as 'Superman' locally because of his investment acumen. "If you ask me if the stock market can go higher, it's possible. But be careful, the economy still has some problems this year."
The Hang Seng has climbed 52 percent from a four-month low on March 9 as investors speculated government stimulus efforts worldwide, including a 4 trillion yuan ($586 billion) package in China, will ease the global economic slump.
– Bloomberg
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