Another Big Move Coming Is In The Precious Metals Sector

Gold/silver mining stocks are the only value sector in the stock market

Note: the following commentary is from the latest issue of my Mining Stock Journal. You can learn more about this newsletter here: MSJ information. A paid subscription to this Substack includes a subscription to the newsletter

The charts above show the ratio of gold to the S&P 500 and the ratio of the Arca Gold Bugs Index (HUI) to the S&P 500 on a weekly basis over the last 25 years (note: I'm using HUI because GDX did not exist until 2006.

The purpose of showing these ratio charts is to demonstrate the degree to which gold (and silver) and the mining stocks are undervalued relative to the general stock market despite the big move that has occurred since the beginning of the year. Gold is still as cheap to stocks as it was at the beginning of 2008. And the mining stocks are as undervalued relative to the general stock market as they were in 2002, when the ongoing secular bull market in the precious metals sector was about a year old.

If you squint, you can see the horizontal black lines I drew on each chart. That's my objective for the gold:SPX and HUI:SPX ratio. Those ratio objectives can happen through a combination of the precious metals and mining stock sector rising and the general stock market declining or the pm sector rising much more quickly over time relative to the general stock market (in this scenario the Fed is printing money furiously). My point here is that the latest cyclical bull move in the precious metals sector is just getting warmed up. Further-more, the mining stocks are significantly more undervalued to the stock market than gold and will eventually undergo a "catch-up" move that will take many by surprise.

While gold and silver are breaking out, the entire sector has not even begun to break out vs the general stock market. But that will change. I have to believe that big macro mutual funds are looking at the precious metals sector as a value proposition and will begin to reallocate capital out of tech and into mining stocks. This drove the mining stocks higher in the 2008 and 2011 bull move. The smartest money has already been rotating into the precious metals sector. But a big rotation into the sector by the big mutual fund complexes (Fidelity, TRowe, Vanguard etc) is still ahead.

From a fundamental standpoint, despite it's "hawkish" book cover, the Fed has been pumping reserves into the banking system, with M2 near an all-time high. And financial conditions per the Chicago Fed's financial conditions index are the easiest since just prior to when the Fed began hiking the Fed funds rate in 2022. The Fed also announced in Wednesday's FOMC Policy statement that it was significantly cutting back on the amount of Treasury QT starting next month. All of these factors not only are inflationary but also incredibly bullish for the precious metals sector.

I don't know what the path will look like (i.e. short term volatility moves in both directions), but gold, silver and the mining stocks are headed much higher.

NOTE: the last issue included updates on six of the names that I cover and recommend, four of which are potential 5-10 baggers. I also offered opinions on Idaho Strategic Resources and Vizsla Silver