Gold Forecast: What Next For The Miners?

Gold kept falling last week and stayed within our forecast channel. Our long awaited fall to lower lows seems finally to be underway, new lower monthly and weekly closes have added to the bearish sentiment surrounding the metal.

Although gold bulls have had a tough time over the last few years, nothing compares to the pain felt by the owners of gold mining shares. Last month’s close left the gold miners still at historic lows in relation to the metal. The HUI gold bugs index is still hovering above physiological support after having a negative month in November.

The last time that gold outperformed the HUI for a significant amount of time was in the DOT.com mania, when the stock market bubble the ratio moved from 2 to over 6. As the stock market burst and gold bottomed, the HUI outperformed gold and the ratio moved back to two where it stayed for almost a decade.

But from the start of the financial crisis the ratio moved against the miners staying above two -- and then beginning this historic move up when gold topped. This ratio hit ten recently which means that gold has outperformed the miners by a factor of five since the financial crisis that is an extreme increase in the purchasing power for gold at the expense of the miners.

Today we see some similarities with the late nineties.  Ergo, we have a strong stock market weak gold and weaker miners.  However, this time the miners are at historic extremes.  Our chart shows data from 1996 to present, however, this extreme reading is a once in a century valuation. One can debate the many reasons why the gold mining industry is facing such a headwind in terms of valuations. But the fact is the gold mining sector ranks as one of the most unloved sectors of all-time.

Our main focus in regard to the miners is to see if history can repeat itself…whether a topping stock market and a bottoming gold price will lead to a new phase of miners outperforming the metal. Whilst there are undoubtedly many difficulties for miners from declining ore grades, environmental costs and threats of nationalisation in some parts of the world, some things have changed for the better.

One of the most significant changes for the miners is the cost of energy, over the last few years gold has outperformed oil, this momentum should provide a boost to the miners…but as yet it certainly hasn’t been the case. We are always more interested in sectors that are extremely undervalued.  However, we don’t mind if they get even cheaper.  Consequently, we now forecast the HUI as part of our monthly market report, which keeps us on the right side of the gold mining shares just as we have managed with gold over the last few years

During the last year we have consistently forecast lower gold prices.  In fact we have never deviated from this long term forecast. All our analysis has shown that we spent the last two years in a bear market consolidation…and we are now continuing the bear market that began in 2012. Unusually for most analysts you can see our track record right on our front page -- and you can sign up to get our 30-day forecast sent to your inbox every weekend.

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We will shortly be publishing our monthly market report, using our unique forecasting logic that has kept us on the right side of the gold market for so long. We are now providing 24 week forecasts for the following major markets, gold, silver, stocks, energy, interest rates and gold miners.

To view one of the most accurate and unique gold price forecasts available visit us at: http://www.kenticehurst.com