The get-no-respect gold-stock sector is in a strong young bull market. Past gold-stock bulls have grown to utterly-massive proportions before giving up their ghosts, greatly multiplying the wealth of contrarian investors and speculators. Today’s gold-stock bull is very likely to grow vastly larger before fully running its course. Fundamental gold-stock-bull upside targets reveal the lion’s share of gains are still yet to come.
A little over a year ago in January 2016, a monstrous gold-stock bear finally climaxed. The gold miners’ stocks fell to fundamentally-absurd 13.5-year secular lows as measured by their leading index, the HUI NYSE Arca Gold BUGS Index. Out of those dark depths of despair, a new gold-stock bull was stealthily born. And it soon started flexing its muscle, rocketing 182.2% higher in just 6.5 months by early August!
Nearly tripling your capital in a half-year is one heck of a ride, leaving gold stocks really overbought. So they naturally corrected. But that selling was soon greatly exacerbated by a series of low-probability events including a gold-futures-driven mass stopping and the post-election Trumphoria stock rally hammering gold. So the HUI’s normal and healthy correction ballooned into a huge 42.5% rout over 4.4 months.
That understandably fueled excessively-bearish psychology that still persists. But this extreme sector pessimism is really distorting the big picture, blinding traders to vast opportunities. Despite that outsized correction, the HUI still blasted 64.0% higher in 2016! That’s certainly the best-performing sector in all the stock markets. And the gold stocks are no slouch in 2017 either, up 17.0% year-to-date as of this week.
In less than 15 months, the gold-mining stocks as measured by the HUI have soared 111.8% higher! In any other sector, such huge gains would be widely celebrated. But not in gold stocks, which remain too contrarian to warrant a second glance from Wall Street. Yet despite this young bull’s already-impressive magnitude, it still remains a baby in gold-stock-bull terms. A doubling for gold stocks is just getting started.
The gold stocks’ last secular bull ran between November 2000 and September 2011. During that 10.8-year span, the HUI skyrocketed an epic 1664.4% higher! While gold-stock investors enjoyed multiplying their capital by 17.6x, the leading stock-market benchmark S&P 500 slipped 14.2% over that exact span. And the gold stocks leveraged gold’s 602.9% bull-market gain during that timeframe by an excellent 2.8x.
So a near-tripling or doubling in gold stocks so far in their young new bull is nothing. This bull is still a calf, just learning to walk. It will continue to grow and strengthen, eventually maturing into yet another raging monster. Only the future will reveal how large today’s gold-stock bull will ultimately get, but its gains so far remain tiny. Still, some gold-stock-bull upside targets illuminate the great potential from here.
Speculating on upside targets is fraught with peril. As no mere mortal can predict the future, no forecast will ever prove precisely correct. So don’t make the mistake of reading too much into bull upside targets. Their purpose isn’t to luckily guess an uncertain future outcome, but to help investors and speculators understand that this gold-stock bull’s best gains are still yet to come. It’s not too late to amass large positions.
While many analysts use pure technical analysis to extrapolate trends, a stronger case for the coming gold-stock upside can be made fundamentally. The gold miners’ stocks are heading much higher not because of mere trend lines on price charts, but because higher gold prices are going to fuel explosive profits growth. Gold-mining earnings amplify gold-price gains, and this core relationship is way beyond linear.
A month ago, I looked at the actual Q4’16 results of the elite gold miners of the leading GDX VanEck Vectors Gold Miners ETF. Since its birth nearly 11 years ago, GDX has grown into the world’s dominant gold-stock trading vehicle. As GDX’s component list contains the same major gold miners as the HUI, this ETF’s price action closely mirrors that older index’s. GDX and the HUI are functionally interchangeable.
Since the gold miners haven’t yet reported their Q1’17 results, Q4’s are the newest available. During that quarter, the elite major gold miners of GDX averaged all-in sustaining costs of $875 per ounce. This AISC measure reveals true operating profitability, showing the per-ounce costs for miners to maintain and replenish operations at current levels. This real-world average AISC can illustrate profits leverage to gold.
