Gold Stock Valuations

I highly recommend the latest article by Adam Hamilton about Gold Stock Valuations.

It's been not much of a secret that gold mining companies have struggled to meet earnings estimates this quarter. In fact, I'm hard pressed to think of any XAU or HUI components which met let alone exceeded estimates.

This was something that really bothered me. But after reading Adam Hamilton's article, I have come to realize that this is really a non-issue.

Hamilton, arguably the most cerebral of the gold analysts, sets for the following arguments:

1. Gold mining stock P/Es have been falling drastically since the start of the gold bull market.

2. Today, gold mining stocks are the cheapest relative to earnings that they have ever been during the current bull market.

3. While the gold mining sector initially needed contrarians to buy into the sector at the gold bottoms around 2001, when P/E ratios were sky high, Hamilton makes the fascinating argument that the succeeding bull market waves in gold miners will ultimately come from mainstream value investors who will realize that gold stocks are finally competitive in value to main stream growth and technology stocks.

The argument is, as is typical of Hamilton, very strongly supported with historic evidence and facts.

I've been worried a lot about how miners have struggled to make money. But after reading that article, it was pretty easy to come to the conclusion that, for the most part, the failures to meet earnings estimates are a non-issue in the gold mining sector, considering the long term trend of falling P/E ratios.