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Gold bull market may be starting second leg as miners lag
Gold climbed from $2,000 to a record $5,600 per ounce, but miners have stayed near cycle lows after bullion pulled back to about $4,000.
Gold has surged to a record $5,600 an ounce over the past two years, but precious metal miners have largely failed to participate, leaving mining shares near cycle lows even after bullion later retreated to about $4,000, according to Mining.com. Don Durrett, founder of Gold Stock Data, argues the gap between bullion and mining equities points to a gold equity bull market that is only beginning. He links the investment case to US fiscal policy, saying a national debt of about $40 trillion, rising by roughly $2 trillion annually, limits policymakers options and keeps pressure on inflation and growth trade offs, which he says also constrains the Federal Reserve.
Durrett expects a second leg in the gold market to start in the third or fourth quarter, taking gold to about $5,500 and silver to between $80 and $100 by year end. He also anticipates the Fed will cut interest rates twice this year and twice more in the first half of next year following an equity market correction.
For mining investors, Durrett highlights the gold to S and P 500 ratio, which he says currently sits near 0.55, far below prior peaks of roughly 3 to 3.5 in 2011 and about 6 in 1980. He believes the ratio could rise to 2 if capital continues rotating from equities into bullion, an outlook tied to expectations that the S and P 500 could fall to between 4,000 and 4,500 while gold rises to between $8,000 and $9,000 per ounce.
Durrett also points to physical demand as a key driver, citing China imports of 173 tonnes of gold in the latest month versus about 3,700 tonnes mined globally last year, with India buying comparable volumes. He is broadly negative on exploration companies, arguing about 95% are not worth owning because few discoveries become economic mines.
Latest closeGold $4,133.60 ▲2.5%|Silver $59.77 ▲3.7%