In the course of last year’s price collapse, a lot of technical damage was inflicted. The past months have seen a significant decline in speculative activity in the sector. The majority of bulls appear to have thrown in the towel. We like the fact that the consensus considers the gold bull market over. Gold is now a contrarian investment.
The migration of gold demand from West to East is continuing. The growing importance of Asia's middle class for gold demand is widely underestimated. Assuming that incomes in China and India will continue to rise, gold will inevitably be one of the beneficiaries of this “love trade”.
Gold stocks clearly exhibit a highly asymmetric risk-reward profile at present. In the wake of the correction, mining companies have reset their priorities - profitability, capital spending discipline and shareholder value have replaced the maximization of production. Moreover, there is no other sector that investors view with similarly pronounced scepticism.
From a technical perspective, our assumption is that the gold price is near the end of its long consolidation period. The clearly positive CoT data and the recent revival of gold mining shares all suggest as much. We are therefore convinced that the technical picture has been repaired and that a stable bottom has formed.Of course correlation is not causation .... but some interesting charts below - But Do Read the Full Report linked above.....
Regarding the Miners - The Metal has outperformed for much of the time, could this reverse from the low ratios seen today?
In our last gold report, we already pointed out that we were sceptical with respect to the mantra of “forever rising production costs” and are forecasting an end to rising costs, resp. even a deflation of mining costs. This was clearly proven correct in the course of the past year. Due to anaemic economic growth and a strong decline in commodity prices, numerous input costs stopped rising, resp. even fell. Thus prices for industrial tires, explosives, as well as wage costs have declined strongly in the course of the current brutal market adjustment. We are of the opinion that the sharp correction in the gold price was a wake-up call for the industry