Stocks rang out last week’s holiday-shortened period with modest losses—down 0.7% on the S&P 500 index (a more accurate barometer than the Dow for the overall market). Of keener interest for us at the moment, though, is the behavior of the precious metals and related mining shares.
To hear some commentators moan, you would think gold had plummeted through every support level in the chart book. Nothing could be further from the truth.
Contrary to the negative chatter, the Midas metal remains more than $80 above two key bottoms that bullion formed during the second half of 2011 (September and December).
Silver, too, is trading comfortably above its 2011 lows, as is platinum. Indeed, while we’ve been able to grab a few shares of iShares Silver Trust (NYSE:SLV) , we’re still waiting to buy ETFS Physical Platinum Shares (NYSE:PPLT).
Given the deep pessimism now evident in surveys of gold-market participants, I think the precious yellow is probably very close to a significant low right now. If so, the battered mining shares should also find their footing soon.
Certainly, the selling in the mining sector appears to be vastly overdone. Take Newmont Mining (NYSE:NEM), for example, which we’re tracking as a Niche Investment outside the model portfolio. NEM is quoted at a lower share price than in December 2003, when bullion was changing hands just over $400 an ounce!
Back then, the company reported annual earnings of $1.16 per share. This year, the analyst consensus is looking for $4.94 per share. The P/E compression is breathtaking, and it cushions your risk from here.
Our gold pick for the main model portfolio is even cheaper. At week’s end, Barrick Gold (NYSE:ABX) was selling for just 8X estimated 2012 earnings. Even if you don’t consider yourself a gold bug, multiples like that should catch your attention!