Gold Miners

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 Gold Market

After shedding some 30 million ounces of gold from a high of 85 million ounces, David Rosenberg of Gluskin Sheff believes it is fair to ask whether the fire sale is done. According to Rosenberg, sentiment could scarcely be more negative, with even the good macro data looking like it is priced in. What’s most interesting to see is that gold and bonds declined in the same year – a very rare phenomenon. The most recent memories of this trend occurring have coincided with gold market bottoms, in which market players shrug their shoulders at the mention of gold.

Opportunities

The Swiss National Bank’s gold holdings are the target of a national initiative and called by citizens collecting signatures, demanding that at least 20 percent of the central bank’s assets be in the form of gold. The measure would also bar the central bank from selling any of its holdings and would require the repatriation of the SNB’s gold holdings with the Bank of Canada and the Bank of England.

Valuations of gold miners are approaching their cheapest relative to book value in at least two decades, precisely at the time when free cash flow generation has bottomed and cost reductions are kicking in. The current valuations present opportunities for junior miners to acquire mining assets, just like Northern Star Resources did by purchasing the Plutonic mine from Barrick, based solely on the value of the proven and probable reserves.

The recent shift in Canadian government policy is having a pronounced effect on the value of the “loonie,” or the Canadian dollar. The Canadian government appears to have shifted gears and decided that a weaker currency, via monetary policy accommodation, is now required to hasten the rebalancing of the Canadian economy. The implications for Canada’s exporting industries, which encompass gold producers, are enormous. We discussed earlier how a decrease in the value of the Canadian dollar could effectively erase any losses arising from declining gold prices for those producers with large, Canadian portfolios such as Agnico Eagle Mines.

ITZ favorite play in the metals sector in the past has been Silver Wheaton SLW, $21 attractive entry level.... targeting 200ma near term & $30 long term price objective. chart