Is hedge fund manager David Einhorn correct when he says a “substantial disconnect has developed between the price of gold and the mining companies” that makes gold miner exchange traded funds a screaming buy?
Valuations on gold mining stocks have fallen to their cheapest level in at last nine years even though sector profits are projected to nearly double this year and gold remains within striking distance of its record nominal high, Bloomberg reported Wednesday.
“When you look back in history, you will say this was a buying opportunity,” said John Wong, a portfolio manager invested in gold and silver stocks, in the article. “It’s like a coiled spring.”
Gold miners’ earnings per share and per-share cash flow rose to their highest levels in at least nine years during the third quarter, Bloomberg reported. “When earnings are reported, the market will be all goggle-eyed about how much cash is flowing in to these companies and what their balance sheets look like,” said Citigroup analyst Jon Bergtheil. “You tend to get a response at that time.’’
Market Vectors Gold Miners (NYSEArca: GDX) was up more than 4% on Wednesday, rallying with gold prices after the Federal Reserve coordinated with other central banks to pump more dollars into the global financial system. [ETF Chart of the Day: Gold]