Gold Stocks Still Undervalued

Source:

". . .the local price of gold everywhere except in the U.S. and Japan is higher than at the peak in March 2008"

Even after a massive recovery with sustained gains, gold stocks are still significantly undervalued. At the major highs of gold at $1,030/oz and HUI 520, the costs to these companies were very high. Oil was high, steel was high, and because of general inflation—most costs were escalating.

Now we have gold at $940 and HUI 350, but oil and steel are much lower. Also the local price of gold everywhere except in the U.S. and Japan is higher than at the peak in March 2008. If you mine in Canada, you care about the price of gold in Canadian dollars, not the regular quoted gold price. That is because most of your costs are in Canadian dollars.

The HUI would have to rise nearly 50% to reach its all time high. Yet today, key input costs are lower and the price of gold in most currencies is higher today than in March of last year. These positive developments bode very well for gold sector earnings over the next several quarters and for share prices of course.

And if can gold can breakout on its own without the reflation trade, then gold stocks could be looking at spectacular gains over the next twelve to eighteen months. Remember though, just because something is undervalued doesn’t mean it will become fully valued within days or weeks.

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