I see things differently. Whereas many believe that China and other emerging markets are unable to get their collective ducks in a row, I anticipate an increase in demand for the yellow metal from emerging regions of the world. Second, the increase in geopolitical tensions from the Russia-Ukraine conflict to the Israeli-Palestinian bloodshed to Syria/Iraq is likely to create greater demand for gold by institutional and individual investors. Third, I look to the gold miners for hints about the future direction of the underlying commodity. And right now, the Market Vectors Gold Miners (GDX):SPDR S&P 500 (SPY) price ratio is particularly bullish. The double bottom that GDX:SPY experienced — with low points at the end of 2013 and in June of 2014 — tells me that the once-maligned precious metals mining segment is likely to build on its momentum
The case for junior miners may be even more impressive. For one thing, many carry much lower debt levels than the biggest names. For another, the big boys have been cleaning up their balance sheets to make a run at acquiring the more speculative mining companies. It should also be noted that valuations for miners in Market Vectors Junior Gold Miners (GDXJ) are as attractive as they have ever been. (Note: One might also want to pay particular attention to the sharp increase in volume of shares traded since 2014 began.)
You do not need to be a gold bug to appreciate the probability that the gold mining segment may be ready for a sharp upturn; you do not have to be a precious metals proponent to believe that the tide may be shifting on a prized commodity. Perhaps you need little more than a desire to diversify with non-correlated assets. The six month correlation coefficient between GDX and SPY – as well as GDXJ and SPY – is about 0.1%. That’s about as close to a non-correlated asset as one will ever find.