I created today’s commentary and update to show the value of a well known gold producer against the value of the spot gold price. My first two charts below are a chart of spot gold and then a well known major gold producer. I have updated the Bullish Percent Index for the Gold Miners Index further below.

I have drawn a blue horizontal and blue vertical line on the spot gold chart. The vertical line marks a date in February of 2007. On or around that date spot gold traded around a then high of $730. On the second chart, which shows the price action of a well known major gold producer, the blue vertical line marks the same date as the spot gold chart in February of 2007. On that date in February of 2007 the gold producer was trading at or around $32 per share.

Spot Gold Chart

Well Known Major Gold Producer

Today spot gold has a value of $1590 per ounce and that same well known gold producer is trading at $38.22.  In my mind there is a huge discrepancy between the spot gold price and the price action of the well known gold producer.  I think the gold producer is showing great valuation, even if spot gold declines further in price.  Remember fiat currencies are in a race to zero, and Central Banks most likely have not finished printing money.

Inputs that contributed to this discrepancy are:

·         Canadian Dollar strengthening

·         Cost of labour

·         Cost of energy (the low cost of natural gas should really help)

·         Forward selling of the product

I still think there is a major difference that is hard to explain.

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The Following is an update to my April 24, 2012 Article – “The Market Field”

The below is the Bullish Percent Index(BPI) for the Gold Miners.
State: Bear Confirmed

• Because the Gold Miners index is made up of fewer stocks, it is more volatile and the range could reach 0% or 100%. The Gold Miners BPI is Bear Confirmed, and as such could remain in this state for a period of time. Because the index is below 30% and at 10%, it is deep in the green zone, it can be considered oversold. 
• Update: Since the last time, the BPI for the Gold Miners moved up in a column of X’s, then turned back down in a column of O’s.  From a value perspective the field position is excellent.  When the BPI turns up into the next column of X’s the BPI will be in a Bull Alert state and if it exceeds the previous high by recording a value of 22 this will mark a great buy signal.  Because we are in a column of O’s there remains potential for further weakness, but we are approaching a point where the valuation is showing great promise.
• Strategy:  Precious Metals Securities are oversold and are starting to present good valuation.  Because the BPI for precious metals has not yet turned up there is still some downside risk.  For the brave: Begin Scaling into positions (¼ to ½ positions)