It appears the good professor believes NOW is the time to enter gold stocks.

Regards - VHF

-

History Is Repeating in Gold Stocks

Lance Lewis

October 29, 2010

Back on October 5, I discussed the curious way that the gold stocks were laggging the metal at the time, as equity investors appeared to almost disbelieve the rise in the gold price. I then suggested that perhaps we were seeing a repeat of what occurred in the gold stocks versus the metal in late 2005, where the gold stocks also lagged the metal badly and then surged ahead of it once the metal had corrected sharply and equity investors saw that the new highs in the gold price weren't just a temporary spike but actually here to stay.



Since then, we’ve seen a similar sharp correction in gold, and the gold stocks have now recovered faster than the metal off that corrrective low, which we can see in the fact that the Market Vectors Gold Miners ETF (GDX) -- and the GDM index, which the GDX tracks -- has now completely retaken all the ground lost on gold’s $40 decline that occurred on October 19, despite the metal not even coming close to doing so.



Thus, once again, gold’s recent correction appears to have revealed to equity investors that gold’s rally wasn't just a “flash in the pan” but instead a sustainable higher price that gold miners will be selling gold at going forward. The result is that equity investors now feel comfortable enough with the new gold price to discount it into the gold mining stocks, and odds are that we'll see the gold stocks now soar to new highs before the metal on the next leg up, just as we saw in late 2005.

A brief glance at yesterday’s earnings reports from Agnico-Eagle Mines (AEM), Goldcorp (GG), and Barrick Gold Corporation (ABX) reveal the fundamental reasons for this outperformance, and when Newmont Mining (NEM) reports its third-quarter earnings next week, it should once again reinforce the fact that gold miners are wildly profitable at the current gold price and one of the only equity sectors seeing both topline and bottomline growth, even though these facts are hardly reflected in their stock prices at the moment.

As with all equities, gold mining stock prices are ultimately determined by the earnings they generate, and while it’s probably taken longer than most gold mining investors might have wanted, the market finally appears to be coming around to the fact that gold mining stocks are far too cheap at their current prices given their dramatic earnings leverage to a rising gold price.

History never repeats itself, but sometimes it rhymes.