January 10 (King World News) - The bull market in gold remains intact. The metal rose approximately 7.14% in 2012 in U.S. dollar terms and has increased in each of the last 12 years. Negative real interest rates incentivize capital to move into gold.
It is difficult to imagine a world of positive real interest rates, absent a significant shift in monetary and fiscal policy in the Western democracies. Gold and gold shares historically have been positively correlated.
However, during the past few years, gold mining stocks have underperformed the metal due a host of issues that we have discussed at length, including in our article A Golden Mulligan. Although the article was published a few years ago, the issues afflicting gold mining stocks mentioned then still hold true.
Gold mining stock valuations are at the low end of the historical range since the introduction of the gold ETF (GLD) in 2004, or roughly 10% (basis XAU/spot bullion.) Significant rallies in gold mining shares have occurred in the past few years from this compressed valuation base.
We see evidence of fundamental change within the gold mining industry, which ...