Friday, April 20, 2012

James Turk: 'The Most Important and Extraordinary Chart of 2012'

James Turk comments on what he sees as "the most important and extraordinary chart of 2012" (emphasis mine):

Take a look at the following 30 year chart, which I believe is the most important and extraordinary chart for 2012.  It presents the XAU Gold Mining Index measured in terms of gold, not dollars:

We're making history here. Gold stocks have never been this undervalued before. We've had a 12 year bull market in gold, but we've also had a 15 year bear market in gold shares that began with the Bre-X collapse.
It’s very rare in market history to see an outlier like this.  This is an extraordinary event. Years from now we are going to look back and shake our heads in disbelief at how undervalued gold stocks were in 2012.
Good long-term perspective for the demoralized gold mining investment community. The darkest hour is just before the dawn . . . give or take a year or two.


  1. But seriously....

    The drop to the lower regime probably has more to do with cost creep. If oil, electricity, emerging market labour etc are all going up in price at a similar rate to gold, you'll get that result with your chart.

    Also though, if the companies print shares and dilute like crazy, you'll get a chart like that too.

    The cost creep problem has for a while made me think that long-gold-short-HUI is probably a genius play.

  2. no doubt that big expense of gold production is energy - specifically oil. rate of oil and gold price increase since mid 1980's has been about same - actually higher for gold prices since then. The ratio of gold price to gold miners price should be about the same --- but it has decreased by over 50%.

    Printing of shares and dilution is more of junior mining issue - this ratio is for the XAU - major gold producers who are not in habit of printing more shares to raise cash.

  3. Frankly, I haven't been paying attention to the methods by which miners finance acquisitions.

    Can you translate that chart into free cash flow multiples?

    Maybe the "GLD destroyed the miners" argument is what works here.

  4. sure - cash flow multiples about 7x right now. normally cash flow multiples for gold miners (in last 10 years) in the 15-20x range. this verifies the chart that at 50%+discount right now.

    agree with your point that GLD taken $ away from miners in big way.

    eventually value wins out --- but not necessarily on our expected timeline.

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