Loading ...This quote from famous hedge fund manager Barton Biggs is apropos:
Secular bear markets in the past have always taken valuations back to the levels at which the preceding bull market started, or even lower. Price to book value is the most stable measure of value, because it is not sensitive to the cyclical swings of the economy as all measures of earnings are.
Given that many senior gold producers are currently trading below book value (share price/book value <1.0) and sentiment couldn’t be worse on the sector, all the ingredients are in place for a bear market bottom. The 2008 GFC took valuations in the sector right down to a price/book value of 1.0 before sharply reversing back above 3.0 twelve months later.
The difference between now and late-2008 is that while valuations are cheaper than ever before, in late-2008 there were several major bullish catalysts that were on the verge of coming to the fore (China stimulus, US stimulus, global central bank balance sheet expansions, etc.). In the current climate it is difficult to foresee the catalysts that will ignite gold shares to rise from the ashes. It is more likely that this bottoming process, which began last summer has another 6-9 months left in it.
The current dynamic in the gold mining space reminds us of one of our favorite investing quotes from legendary investment manager Howard Marks:
When everyone believes something is risky, their unwillingness to buy usually reduces it’s price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing since all optimism has been driven out of it’s price.
Make no mistake, fortunes will be made by those who invest wisely in the gold space during this period. However, investors will need time and patience.
http://www.investing.com/analysis/gold-miners-are-historically-cheap-230194