The gold (GDX) and silver (SIL) miners have been hammered down to historic 1999 lows, while the U.S. banks (XLF) and U.S. dollar (UUP) reach new heights. This is a great opportunity for value investors to enter the mining sector at possibly the ground floor of a commodity supercycle.
Many amateur investors may be prematurely assuming that all is well with the global economic picture. The fine tuning of the economy by the Central Banks and specifically Ben Bernanke appears to have been a major success to the masses. On the other hand are astute investors who have learned from history and are aware of the financial risks stemming from currency devaluation. Could this really be an illusion? Could the dollar be on the verge of a collapse? Is the Fed losing control of interest rates that could spike higher?
Gold (GLD) is undergoing a significant correction after making a huge run from the 2008 low below $800 to $1,900 in August of 2011. Gold is significantly below its three-year trailing average at $1,550 and its five-year trailing average at $1,327. The last time this occurred was in the late 1990s. Investors who acquired gold back then saw incredible 660% gains while the equity markets did nothing over the next 15 years. A similar opportunity could be occurring right now in precious metals and the junior miners (GDXJ).
Long term investors are increasingly realizing that this is a historic buying opportunity for natural resources and mining stocks. We are near 30 year trough in the value of miners. Commodities are cheap, interest rates are historically low and the U.S. housing, greenback and equity markets are near all-time highs. It seems that many of us underestimated the powers of the Central Banks on the free markets to manufacture a recovery while suppressing commodity prices for the short term. However, astute long term value investors realize that this is the time to acquire real assets for pennies on the dollar. Every action has an equal and opposite reaction. Eventually, contrarian value investors will be rewarded.