-- Posted Friday, 5 August 2011 | | Disqus

Mining stocks still represent excellent value versus the underlying metal prices. Since 2005 when gold broke above $500, the Philadelphia Gold Mining Index is up only 91% versus the gold price which is up 184%.

Compare this to the last great U.S. financial crisis when gold went up 46% but Homestake Miining went up 1400%. They say the past is prologue to the future and if history repeats itself the gold mining stocks could have a huge revaluation in the future.

The above raw numbers today do not take in consideration that a $100 increase in the price of gold should have a multiplier effect on mining profits, asset values (resources and reserves) and internal cash flow.

Conclusion:

Gold mining stocks are undervalued and eventually will respond to financial strains in the global economy with a strong upward bias.

There are many reasons why more financial/economic stress is coming to many of the advanced and advancing nations:

• Debt and budget conditions that threaten the largest financial institutions
• Money supply increases in the G-20 countries that surely will be inflationary
• A global business slowdown accompanied by recession like1973-74 when gold doubled
• Bank or money market “runs” that create another liquidity crisis.

The advanced countries are too much in debt to do anything but create more money and credit to bail out the financial institutions and governments. The Chinese and Indian economies (largest gold and silver consumers) have already created too much money pointing to excessive inflation.

Eventually there will not be enough gold to satisfy demand and then a tidal wave of money will pour into the gold and silver mining companies with verifiable reserves and resources.

-- Posted Friday, 5 August 2011 | Digg This Article

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