"So what?" you might ask. Well, if you believe in mean reversion, then miners should be attractive to the value investor. Take a look at the 30 year monthly chart below of the XAU-to-Gold. I've plotted gold price on the lower panel so you can see what the metal did on its own during the same period.
Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that "The time to buy is when there's blood in the streets." I think you can make a strong case that the precious metals miners are the bloodiest they've ever been:
- The XAU is the cheapest it's ever been relative to the price of gold.
- The gap between the 50 and 200 month moving averages is the widest it's ever been.
- The current ratio of 0.067 is 35% below the 50 month moving average and 63% below its 200 month moving average - both extreme readings
- Just to get back to the lower bound of the green box (the long-term range), miners will need to outperform gold by a factor of 3:1 (either that or the gold price would have to crash to $445/oz)
- The price of gold and silver is currently at or below the cost of production for primary miners. Sustained precious metals prices at these levels is untenable meaning that either prices need to rise or the miners go out of business.