Gold prices have climbed over 17% for the year, taking advantage of a dollar that’s expected to retreat once interest rates fall. As such, investors looking for opportunities may want to consider gold miners, as they’re offering incredible value.
The NYSE Arca Gold Miners Index is up 16% for the year, which falls closely in line with the metal’s current rally. However, a closer look at other metrics offers a different perspective, particularly when it comes to value versus price.
From a historical perspective, a Sprott Gold report noted the disparity in performance for gold miners in current times when juxtaposed with spot gold. This is especially the case when looking at gold miners’ price to net asset value ratio (P/NAV), which indicates that miners could be severely undervalued. To contrarian investors, this should be an ideal area of value for consideration.
“In our view, gold mining equities remain deeply undervalued and offer attractive leverage to further upside in bullion,” the report said. “Since 2009, the gold price has increased by 150% while valuations of gold mining stocks declined by more than 40%. Nobody invests in a gold mining equity unless they expect a higher gold price. Low equity valuations in the mining space should be a bell ringer for contrarians.”
Figure 3. Senior Gold Mining Equities Historical P/NAV vs. Spot Gold (2009-2024)
Two Mining Opportunities
Investors who want to take advantage of gold miners have a pair of options from Sprott: the Sprott Gold Miners ETF (SGDM ) and the Sprott Junior Gold Miners ETF (SGDJ ).
SGDM seeks investment results that correspond generally to the performance of the Solactive Gold Miners Custom Factors Index. This index tracks the performance of large gold companies found on Canadian and major U.S. exchanges.
On the other hand, SGDJ tracks the Solactive Junior Gold Miners Custom Factors Index, which follows the performance of the small-cap precious metal companies. Small-caps have the propensity to make amplified moves toward the upside when the broader market is trending higher, making this an ideal option for those who also want small-cap exposure.
As the Sprott Gold report noted, it’s an ideal time to take advantage of these opportunities prior to a move toward the upside.
“Inflows into the precious metals mining space have the potential to generate compelling outcomes,” the report said further, noting investors will get a glimpse of their potential from second-quarter earnings reports.
“In our view, it will not be long before sell-side analysts and strategists begin to scramble to raise earnings estimates for both the companies and price targets for precious metals,” the report added. “We believe the window of opportunity to position this sector on attractive investment terms is beginning to narrow quickly.”
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.
