Bargain Trio in Gold

08/14/2015 9:00 am EST


Alan Newman

Founder, Crosscurrents Publications, LLC

Gold is down 46% from the August 2011 highs; in that period of time, the Dow is up 52%. So, how can we still be bullish on gold and bearish on stocks? asks Alan Newman, editor of CrossCurrents.

Yes, it all seems horribly wrong but our thesis began to form ten years before, on September 11, 2001, not in 2011. That thesis states the 9-11 terror event marked a sea change for the future.

The age of paper assets was coming to an end and the universal currency that gold bullion has represented for thousands of years would again take a prominent role.

The twin housing and stock bubbles that concluded in 2007 were further evidence that our thesis was valid. If we were wrong, there is no way stock prices should have been cut in half by March 2009, but indeed, they were.

And in the same span of time stocks were halved, bullion rose 22.5%. Since 9-11, stocks as measured by the Dow, are up 36.8% while gold is up 198.3%.

Therefore, despite the last five years, our thesis remains intact. Gold is by far the better performing asset.

Nevertheless, gold has tumbled below $1100 per ounce. Here’s a fair question; at what level do we admit we may have a problem with our thesis?

Based on the ratio of gold price to stocks—based on current Dow levels—gold would have to fall below $850 per ounce to begin discrediting our theory.

While the recent action in bullion may be depressing for gold bulls here at home in the US, it appears far better when shown in other currencies, like the euro and the yen.

The breakdown in gold priced in US dollars is quite evident, but we still see gold in an uptrend for the yen and—to a lesser extent—in the euro.

So, why has bullion fallen so dramatically in price? We cannot completely vouch for the theories we’ve seen of manipulation in this market, but we can only point out that Central Bank interests are served by lower gold prices.

Far more importantly, the world’s two most populous nations are buying gold as fast as they can.

In fact, China is buying more than the world. Given China and India represent three of every eight people on the face of the planet, demand is expected to grow sharply as the middle class in each nation eventually expands.

So as long as we see demand from China and India, we’ll remain firmly committed to gold.

Although we cannot guarantee that gold buyers will be rewarded anytime soon, we thought it appropriate to put together a list of what might very well turn out to be the biggest bargains.

Newmont Mining (NEM) and Goldcorp (GG) have been our top two gold positions since our initial super gold bull market call in 2001.

We have also pegged Iamgold (IAG) as the most attractive mining speculation that we have yet uncovered. IAG’s book value and cash per share imply the ability to wait out the current bear phase.

Why did we choose to add Asanko Golf (AKG) and Hecla Mining (HL) to this list? We’ve followed both for several years and believe they are attractive speculations, based on price and book value.

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