Precious metals are currently down in value due to the fact that flock investors prefer stocks right now. Wall Street is driving the wall of money at present, expecting better growth and earnings.
Gold mining shares and their ETFs, such as GDX and GDXJ, typically do not have a positive correlation with the overall equity market. They often tend to surge during the final stages of a multi-year equity bull market.
GDX and GDXJ remain one of the few true extremes remaining in the financial markets, and junior gold producers have been trading as though the actual gold price was substantially lower than it actually is. Historically, gold mining shares often rally on a different schedule from other equities which makes it necessary to trade them according to different rules and expectations. In general, precious metals and their shares are probably set to repeat their behavior from August 2007 through March 2008.
In August 2007, gold mining shares were hated even by long-term bulls because they were not participating in the global equity rally to new all-time highs. Then by March 2008, gold mining shares were media darlings. Imagine gold at two thousand U.S. dollars per troy ounce, and remember how an extreme of sentiment in one direction can easily transform into a similar extreme in the opposite direction.
Gold mining shares often complete important bottoms prior to other equities. Most investors will do their heaviest selling when they should be buying, and vice versa. Such is the present scenario. Buy high, sell low.
Because gold mining shares have become so oversold, they are likely to rebound merely to regain their previous already undervalued levels, which will then put them on the radar of momentum players, chartists, and many fund managers that buy anything which is showing upward momentum, regardless of circumstances.
Buying gold mining shares at current valuations is most likely the easiest trade of the first half of 2013!