The bottoming process in gold and gold mining shares continues to be an extended and frustrating affair. Nevertheless, the fundamental rationale for positioning physical bullion and gold mining shares seems more compelling than ever. ...
The accelerated decline in the first quarter of 2013, in our opinion, suggests a capitulative phase in which investors are giving up on the notion of exposure to gold, and especially gold mining shares. The mining shares, which were already historically cheap at the beginning of the quarter, became even cheaper. Intense liquidation of GLD and other gold ETFs during the quarter also seemed characteristic of a broad capitulation.
Gold, a favorite investment theme two years ago, has become toxic to many. To recap the factors we believe led to the decline: gold became overbought during the threatened government shutdown in August of 2011. As one of our favorite technicians stated, when the price of anything attempts to go parabolic, it must suffer from a hangover. ...
I believe that the precious metals sector has arrived at a significant bottom and that the next leg in the gold bull market is ready to commence. ...
The fundamental case for owning gold has improved since year end 2011. Real interest rates remain negative, worldwide quantitative easing has proliferated, and the events in Cyprus demonstrate that uninsured deposits in the commercial banking system are at risk in any resolution scenario. ...
The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like a contrarian's dream scenario to us.
