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!
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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