Gold's real price has long been the key to profitability of
mining, as well as to cyclical opportunities, often opposite to the direction
of the general stock market.
Historically, the CPI in the senior economy has provided the best
determination of gold's real price, but the calculation of the U.S. CPI has
become suspect.
A better alternative has been our gold/commodities index, which is
calculated daily. This is a sound proxy of gold's real price, that also
represents purchasing power or mining profitability.
This has suffered a significant decline since January and this has been
accompanied by a relentless decline in many gold exploration stocks.
This study concludes that these, as well as the real price, are close to setting
a cyclical bottom in anticipation of a lengthy new bull market. Within this,
gold stocks should outperform the bullion price as the exploration sector
becomes the equivalent of the junior tech stocks in the mid-1990s.
The role of the latter was to fund a great innovation in technology and
business. The role of gold's real price and the exploration sector is to meet
an extraordinary increase in investment demand for gold that typically
follows an era of remarkable credit expansion.
