Gold Mining Stocks Set to Surge

Pinnacle Digest writes: In his latest article, Neil Charnock breaks down exactly why gold, and more specifically, gold mining stocks, are about to surge higher. Much like Stewart Thomson’s article from yesterday on this very subject, Charnock believes a bottom has formed in precious metals and the supportive equities. This is by far the most detailed analyses of how and why gold stocks will breakout.

Charnock explains that as the European debt crisis continues to worsen, and QE after QE is implemented, the yields on gold and gold miners will become too attractive for even the most ‘dollar-supportive’ fund manager to resist.

Charnock states that “This is especially important in these economic times as alpha is king.   Alpha is just a professional term for yield.  Even despite the risk on the banking sector here at present we have decent yields in this sector which is holding up their share price.  As the global investment community seeks to maintain their wealth in a deleveraging world they will flock to yield.  This will be one of the more significant capital flows in the coming decade.   Flows not chasing alpha will be seeking a safe haven which will require lack of counterparty risk.”


Gold mining stocks are attractive at this exact moment in time because gold prices have stabilized around $1600 and oil has collapsed. This has helped gold miners profit margins remain at record highs, despite their share prices collapsing of late. High profit margins (near record levels) and low share prices, creates the opportunity to garner extremely high yields. In a market where strong yields are hard to find, and investors begin to fear fiat currencies as the debt crisis worsens, gold stocks will likely see a surge in demand globally  – which would  naturally send gold prices way up and increase profit margins further on the miners.


An example of the rising demand for bullion: China is the world’s largest gold producer at 360 metric tonnes annually. Despite being the world leader in gold production, China remains a net importer of the precious metal. While not all major economies have become net importers of gold, banks have now made gold a tier 1 asset which will change the overall demand picture.


Click here to read Neil Charnock’s entire article.