Gold stocks are getting cheap. Put them on your radar: Larry Berman
BNN Bloomberg
When we look at the relative value of the S&P TSX Gold Index (1987-current), gold equities are about as cheap as they have ever been to gold prices, Larry Berman writes for BNNBloomberg.ca.
The most important is real interest rates. Gold (and gold equities) pay no (or very little) yield, so competition to bond yields is a huge factor. Historically, the correlation is very high. U.S. dollar level versus developed market currencies is the second thing. It is often thought that a stronger or weaker dollar moves commodity prices. This is true in the very short run, but longer-term correlations are superfluous. Least important is flight to safety. These periods are typically temporary and last days to weeks.
Our first chart looks at the spot gold price versus U.S. 10-year real interest rates and the U.S. Dollar Index (scale is inverted to show falling gold prices correlates with rising real yields and a stronger U.S. dollar.) There are several instances where rising or falling U.S. dollar levels have limited impact on gold prices. The correlation with the trend in real yields is very strong until recently. It seems of late, the weaker U.S. dollar has been a positive for gold prices compared to real yields. However, gold stocks have sold off as gold prices failed to breakout on the recent rally.
