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Think gold is another asset bubble waiting to pop? The strength of the mining stocks is telling a different story based on a mix of near-term and secular trends.
The big picture story we know: in an era of fiat currencies being printed to fulfill quantitative easing policies, the barbarous relic has renewed its status as a monetary vehicle, a way for investment managers to diversify their exposure to dollars, euros, yen, or pounds.
Holders of paper currency, printed to sustain numerous, ominous bubbles of debt, have an appetite for exchanging it for "hard" currency. And this hunger is only likely to continue.
The near-term story is that we are in the midst of a seasonally strong period for gold where it's very likely the yellow metal makes a run for its all-time highs above $1,900.
And strong gold stocks are confirming this likelihood by threatening, if not forging, new highs this week. Two weeks ago I looked at four attractive names with market caps less than half the size of the giants Barrick Gold ( ABX - Analyst Report ) , Goldcorp (GG), and Newmont Mining (NEM).
Here again are those "smaller" miners with earnings momentum leading the charge higher this week. Each is displayed with market cap, forward multiple, and a 2-year weekly chart for perspective in this historic gold rush.
Royal Gold (RGLD): $4.4 B, 38 P/E
The New Heavyweights of Gold
The Market Vectors Gold Miners ETF ( GDX - ETF report ) is the most popular basket for trading all these names at once. The "big 3" mentioned earlier, Barrick, Goldcorp, and Newmont, combine to form 40% of the weighting of GDX with their respective market caps of $53 B, $43 B, and $35 B.
But part of the reason you are seeing the big moves in the sub-$20 B names is because three of the four I picked two weeks ago -- AngloGold, Gold Fields, and Randgold -- are in the top ten holdings, totaling over 15% of the fund's weighting.
The one that caught me by surprise was Goldfields. I have been bullish on this stock since it was trading $15 over the summer. It may still be the one with the most percentage upside.
The Monetary Phenom
For a fun look back at a bad hair day for me (I know, they all are), check out this CNBC video clip (link below) where I was interviewed by Maria Bartiromo about gold becoming a monetary phenomenon.
My forecast in November 2009, when gold was just making new highs above $1,150, was that we would see $2,000 within 18 months because central banks were accumulating to diversify their foreign currency reserves.
Yeah, it took more like 21 months and I fell shy by 75 bucks as only $1,923.70 was reached September 6 of this year. But, close enough right?
Kevin Cook is a Senior Stock Strategist with Zacks.com
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