While it is almost impossible to ‘pick the bottom’ following a mid-cycle sell-off such as we have seen over the past year, a range of indicators suggests a rebound for this beleaguered sector may be near:
1. Gold miners are deeply undervalued – On a fundamental, relative, and historical basis the sector is undeniably attractively valued. Market multiples show miners’ relative valuations are near record lows compared to broader markets, while Baker Steel’s proprietary “GenVal” tool estimates c.90% fundamental upside potential for Baker Steel’s gold equities strategy, just at spot gold prices.
2. We see signs the sector has bottomed – Short-term market indicators, most notably the ratio of gold equities to general equities, signal that the market is bottoming out and a turning point is near. We are seeking to increase beta through stocks which show high sensitivity to rising gold prices as well as outstanding value.
3. The long-term bullish picture for gold is unchanged – The headwinds for gold and gold miners are easing, while the core macroeconomic drivers remain in place.