RE: valuation The funds moved out of equities and into safe havens during the European financial crisis. The good news is that while the flight to safety drove gold prices higher, the debasement of currencies that was and continues to be part of the cure (plus the overhang of debt) means gold is holding value even as the risk trade returns to the market. The Chinese, Brazilians, and emerging economy countries also need to boost their reserves of non-dollar holdings (You want Euros, drachmas or gold?). Even Chavez repatriated his massive stockpiles of gold from London. And India can't stop people from buying gold at any price. They can't build bullion storage vaults in Singapore fast enough. And Deutsce Bank announced this week they are building a new one in London.
But fund managers have to reach for returns to stay in business, or keep their jobs. They can't count on appreciation in physical gold for the returns they need to satisfy investors, gilts pay no interest, and the securities regulators frown cash stuffed in the mattress. The first wave of the return to thirst for returns (the so-called Risk Trade) is hitting US shares, with tech benefiting in particular. The S&P is at pre-2007 crisis highs.That has almost run its course as Apple, IBM and social media companies (social notworking as it's called) can only absorb so much of the trillions sitting on the sidelines seeking returns. And despite people getting their panties in a bundle about Bernanke saying things are getting better, it's a far cry from good times). So people start to look around for imbalances and areas of undervalution. Sector rotation will bring gold equities around again on the guitar (Alice's Restaurant, Arlo Guthrie) based on value—under-value, that is. A number of analysts and fund managers have recently pointed to the upside-down valuations of gold and silver producing miners to the underlying metals, which is at the lowest since 2003, and they predict a rapid rise in mining shares when that imbalance corrects. Likewise they point out that funds given to investing in juniors temporarily moved out of juniors and into larger cap miners during the fear phase last year (which actually started with Egypt not Greece....remember when the media was talking about the fall of the House of Saud?). They sought relative stability over large returns as the fear grew in starts and stops from Spring until just recently. These $/oz in the ground numbers for juniors are a reflection of that So, in my opinion (and this is all opinion) what we are seeing is not a crummy market per se, so much as investors just beginning to return all-too-gradually to the sector, and doing so nervously in fits and starts. That nervousness being reflected recently in things like the GDXJ and Venture Exchange, and you can see that GCU was punished with all the others--quite indescrimately and in the face of good news (in fact, run a comparison of the GDXJ and GCU and look at the close correlation, except for the last few days where the drop in GCU became silly. GCU's resource estimate came out at a time when the market was already nervous. This confusing situation in turn makes investors more nervous when there is no reason, based on fundamentals, to be nervous. "Why is the news good but the stock drifted lower? Must be something scary hiding under the bed." And then the shorts step in and make it worse by telling ghost stories and playing games. Shakespeare described this human trait well 400 years ago in a Mid Summer Night's Dream:
Such tricks hath strong imagination,
...Or in the night, imagining some fear,
How easy is a bush supposed a bear!
When confidence returns to the gold equities and the juniors it should do so with surprising speed, because that's what always happens when greed trumps fear. It could come quickly. It seems like yesterday that the news media and pundits predicted the collapse of the global ecoomy if Merkel wouldn't budge on Greece. Hear anyone talking about another Lehman this week? Anyone seem worried about French banks lately? And so I would wager that when people look back at opportunities like today they will say "Woulda, coulda, shoulda." As we always do.
Pardon this very tedious digression, but this soft market and unrealistic valuations for gold in the ground (and GCU getting beaten up for being a great company with a great project(s) and good news) drove me to it. And it seems to be the topic of du jour.
Now it's happy hour in Winnemucca; time to drown an ice cube. Tomorrow is another day. Let's see GCU and the miners in the green. GLTA.