Gold Miners: The Ultimate Contrarian Investment

Let’s discuss one of the most oversold and hated investments in today’s financial market conditions – Gold Mining equities (NYSE: GDX).

Performance over three and twelve month time frames, together with sentiment and breadth readings, all indicate that the mining shares are most likely ready for a relief rally. Furthermore, the price of the mining equities has recently tested a major support level dating all the way back to year 2000. There should be buying interest right here and that is clearly seen by sky high volume in various ETFs such as (NYSE:GDX).


Returns have been quite awful to say the least, which from a contrarian perspective gives investors a chance to bet on a short term bounce, if not a long term rebound. Conditions in the Precious Metals sector are very much depressed from the historical basis, as evidenced by the following two charts.

Firstly, the 3 year compound performance for Gold Miners is now at record low levels, which we haven’t seen since the index floated in middle of 1980s. Shockingly, the mining stocks have lost almost 40% every year for the last three years running. That is some serious selling pressure, to say the least.

Gold mining compound returns over the last 3 years are horrific


Secondly, we have already discussed how Silver has lost 70% over the last 4 years. When priced in Gold (relative price), the metal has recently hit the ratio of 80 and testing very important some historical support zones.

At level of 80 Silver has become extremely cheap relative to Gold



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