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Could this really finally be the moment to buy the gold miners?

 -- Published: Tuesday, 28 July 2015 | Print  | Disqus 

By Peter Cooper

Casey Research is making the same case it has made numerous times over the past few years, and always been wrong: namely that now is the moment for contrarian investors to pile into gold mining stocks.

Anybody who has taken this advice has lost a lot of money. ArabianMoney at least had the decency to close its paid-for investment newsletter this year and give up on offering this advice. We’ve gone back to being purely a journalistic channel, admittedly with its own bias like any other media outlet.

Wrong for too long?

The problem for Casey is that yes their case gets better and better, the lower and lower gold prices and gold stocks go. But that only further serves to prove them wrong, at least for the moment. So what do they say?

‘Gold stocks are down 78 per cent from their peak in 2011. They’ve been in a bear market for 52 months, making this the second-longest bear market in gold stocks in 76 years. On average, gold-stock bear markets last only 34 months.

‘It’s gotten so bad that the mainstream media is declaring gold dead. A Washington Post headline from Saturday was titled ‘Gold is doomed.’ A Bloomberg headline read ‘Gold Looks Like a ‘Textbook’ Short.’

Investment track record?

‘Longtime readers know that the mainstream financial media has a horrible track record of investment calls. You’re usually better off doing the exact opposite of what they recommend.’

Really, not if you’ve been following this logic for the past four years on gold stocks or the metal itself. However, Casey Research does have a point that markets always find a bottom, they have just been lousy at calling it. Have they got it right this time?

What does that matter if they have lost all credibility in the market in the meantime? Remember the old tale about the little boy who cried fire so many times that when there was a fire his house burn’t down? He was being malicious in his comments rather than trying to make an accurate forecast, but it was about as much use.

Now Casey refers us to research by Meb Faber, the chief investment officer for Cambria Investment Management who ‘looked at the data for US industries dating back to the 1920s. He found that industries down 80 per cent or more from their peak held incredible upside potential.

Big bounce back

‘On average, these industries returned more than 170 per cent three years later after recovering… Gold stocks are down 78 per cent and have fallen for three years in a row…Buying a sector that’s near a bottom is scary. The news is terrible, and it feels like the sector will never go up again.’

You can say that again, and Casey Research might just do so again next year! That said when even critical goldbugs like ArabianMoney’s confidence is wearing thin then the contrarian moment is surely coming.

If there is an argument for buying gold stocks now it is this: prices in relation to the gold price are very low by historic standards and if you want to pick up more than a few shares in a rebound then you need to accumulate them now while this market is so far out of favor. You may not be able to buy many at these low prices when they do finally turn. Time to buy anybody?

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 -- Published: Tuesday, 28 July 2015 | E-Mail  | Print  | Source:

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