Ye of little faith. ASX selling gold miners short?

With gold resuming its bid Friday night let’s take a look at where the miners as a sector are versus the underlying price.

On a purely one-to-one basis, the recent correction looks a little overdone if you think we’re in a bull market:

A better way to look at it is using an index chart:

That shows that the mining sector is more elevated versus the underlying price over the past twenty years. But not extremely so. In fact, the current multiple of gold-to-sectoral valuation is roughly neutral if this is a bull market. The ratio gets considerably more stretched when things are overheated as junior miners become profitable.

Clearly, the cheaper entry points for bull markets are in extreme sell-offs such as early this year and 2008 but those are not the norm.

If you are considering gold miners then research the individuals!

David Llewellyn-Smith
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