After a stellar year in 2020, the precious metals mining sector has had a dreadful year in 2021; the GDXJ Junior Gold Miners ETF is down 25.2% so far in 2021 and many individual gold mining stocks are down 50% or more. Suffice to say, there isn't much to be cheery about if you've been long gold miners in 2021. However, that could be about to change as bullish seasonal tailwinds begin to take hold over the next couple months:
Over the last 20 years gold has average about a 5% gain between mid-December and the end of February. A 5% gain from today's price of $1788 would put gold tantalizing close to $1900, and likely trigger a sharp rally in beaten down and out of favor miners.
The largest gold miner in the world, Newmont (NYSE:NEM), is also sending a positive signal for the gold mining sector.
NEM (Daily)
NEM shares have rallied ~10% from their recent low near $52, this bounce is in stark contrast to the rest of the sector which continues to dribble along the bottom. The last time NEM tested this area of support (early March) it turned higher before the gold price and the rest of the gold mining sector - the current situation feels very similar to March of this year when the senior producers such as Barrick and Newmont were turning up while the rest of the sector lagged badly behind.
Wednesday's Fed announcement and press conference could throw a wrench in any bullish gold seasonality, however, other potentially even more pressing macro events such as Russia/Ukraine tensions could trump any hawkish rhetoric from the Fed. Seasonality and macro even risk aside, I like the odds of buying a major gold producer at 1x book value and 7x earnings:
This is the current valuation situation in Kinross Gold (NYSE:KGC, TSX:K), the gold mining company that announced a C$1.8 billion acquisition of Great Bear Resources (TSX-V:GBR). Kinross Director David Scott appears to agree that Kinross shares offer an attractive investment opportunity:
After an especially brutal tax loss selling silly season gold miners are on the clearance rack and a Santa Rally can't come soon enough for this beleaguered sector.
Disclosure: Author owns Kinross Gold shares at the time of publishing and may choose to buy or sell at any time without notice.
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