Is it crazy to think that gold stocks could easily double from their current levels?
Not if you realize the extreme condition the gold-stocks-to-gold ratio is in. And not if you know your market history.
As you’ll see, history shows us that gold stocks could jump 100% in the coming 12 months.
Regular Growth Stock Wire readers know that gold stocks have suffered a horrible 2013. Gold has fallen from $1,675 to $1,300… and that caused a 52% selloff in gold stocks. Blue-chip gold stocks were cut in half. Weaker players have lost more than 75% of their value.
[ad#Google Adsense 336×280-IA]It’s a “blood in the streets” environment for the sector.
And when there’s “blood in the streets,” there’s often great value.
One measure of value for gold stocks is the gold-stocks-to-gold ratio.
This is a simple measure of the ratio of the price of gold stocks to the price of gold.
When it gets badly out of whack, big moves happen in gold stocks.
For example, the chart below shows the ratio of the value of the iconic AMEX Gold Bugs Index (“HUI”) to the price of gold.
When the ratio is very high, it means gold stocks are expensive relative to gold. When the ratio is very low, it means gold stocks are cheap relative to gold.
The ratio was at its most extreme in November 2000. After that ratio was reached, gold miners soared 435%. In 2008, another extreme point was reached. Gold miners soared more than 150% in the next 12 months.
Now look at the right-hand side of the chart. The gold-stocks-to-gold ratio is at a 12-year low. It hasn’t been this low since January 2001.
Will gold hold steady at $1,300? Will it slump to $1,000? Will it rally to $1,800 if the global monetary system suffers another earthquake?
We can’t know for sure. But we can know if gold holds steady… or rises just a little, gold stocks could stage a big “catch up” rebound. History shows that 100% gains are possible here. Don’t miss out on them.
Good investing,
Matt Badiali
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Source: The Growth Stock Wire