Is It Time to Dig for Gold with Miners?
"The GDX will go higher, but don't expect a smooth ride."
Gold miners are now very attractive from a long-term perspective. I am not sure of the timing down to the day or the week, but now could be a great time to position for the next few years.
The first reason is simple rotation: Miners have lagged the performance of the precious metal itself since the beginning of December, and they fell to multi-year support when gold and silver crashed earlier this month. Using the Market Vectors Gold Miners ETF (GDX) as a benchmark, we find that gold miners are at the same price where they peaked in March 2008, when bullion was worth about one-third less than it is today.
The next reason is that precious metals remain in a secular uptrend. The push we just saw to $1,500 per ounce was not the kind of "blow-off" top that often occurs in commodities, but a higher high in the context of an ongoing bull market.
All those skeptics who have scoffed at gold for the last decade are now quietly changing camps, which is why there are more buyers than sellers now. But given the cheapness of miners versus bullion and the fact that the GDX is at long-term support, I suspect that gold miners are now a better place to invest than the metal itself.
My one concern is that the GDX might see another drop, which makes it wise to build a position slowly. But realize that once we leave current levels, there will probably be no going back.
Finally, I want to add that all of this applies to silver, but with much, much more volatility because it is a high-octane, turbo-charged version of gold. Long term I believe it's also going much higheróbut don't expect a smooth ride.