This is an excerpt re gold miners from a recent Etrade report:
"Your editor and I were at the African mining conference last week, and the question arose why gold stocks generally were not reflecting the gold price. We think that this imbalance will almost certainly correct itself at some point, which is why we are happy to hold a small part of the portfolio in producing or close to producing gold stocks. I asked Chris Baker, portfolio manager of Caledonia (see Issue dated 9 February 2012: Made of Steel) what gold price the current level of gold stocks generally does reflect, and his answer was a guess of $1200 to $1300 per ounce. "
The leverage inherent in the valuation of a business whose net margin is probably double at $1600 what it would be at $1300 is substantial. This is the valuation gap that we would expect to close in the fullness of time."
CGM Price at posting:
9.0¢ Sentiment: Buy Disclosure: Held
