Gold Sector Trading Opportunities

Occasionally, movements in the prices of gold equities make sense. Eight months ago, I posted this wire (VIEW LINK) outlining the latest results from my gold sector valuation model. It referred to the model’s four most overvalued and four most undervalued stocks (with the hope the latter four would subsequently perform better than the former). Since then, the average decline of the four most overvalued stocks out of 26 in the model has been 2.4%. The four most undervalued have risen on average by 141%. After dropping the top and bottom returning stocks from the two groups to eliminate performance extremes, the returns are +53% and -6%. These outcomes boost confidence in the model. They also confirm that the market does react to things that matter. The results leave begging why discrepancies that require reversing occur in the first instance. Their presence suggests that one-off re-pricing events are continually precipitating over-reactions which must subsequently be adjusted to realign stock prices. There are enough stocks in the sector to give investors meaningful and frequent trading opportunities based on value characteristics.