(from our Tactical of 11th October 2016)

Goldminers have a notoriously high beta to the price of gold, and they didn’t disappoint last week, with the GDX dropping 13% vs down 4.5% for gold.  However, we have had a technical divergence buy signal for the GDX (chart below).  Last week’s sell off was sharp, but gold stocks were up 130% on the year at the highs.  They were thus due for some air to come out.

img1

Source: Macrobond, Bloomberg and Variant Perception

But the fundamental picture has not changed.  Gold stocks are still very cheap relative to the gold price (almost the cheapest they have been for over 30 years) and the reasons for owning gold, as listed on the previous page, are very strong.  There is real demand, for instance, from central banks.  The growth rate in gold reserves is at a 50-year high (chart below).  We would recommend beginning to re-accumulate positions in gold mining stocks.

img2Source: Macrobond, Bloomberg and Variant Perception