Mining shares are extremely undervalued. What is commonplace on Wall Street when extremes are pervasive is a counter-trend materializes. The counter trend is usually a powerful reversal.
This reversal is primarily because of two reasons: 1) there are few if any sellers left and most of the shares are now in strong hands that realize that their downside is limited but their upside is well above average. This makes these investors continue to add to their position as well when the reverse trend starts; 2) Value and momentum investors are a large part of Wall Street. Value players are constantly searching for situations that show lots of value at a discount and eventually will find industries that may not have been on their radar screens in the past but are now flashing a green light. Mining shares are certainly in this category. Momentum players understand that the longer momentum cycles return the most rewards. Extremely discounted sectors on Wall Street usually last a long time since the natural return to normal values from such a steep discount would logically happen over an extended period of time.
There is also a third aspect to the above as well. Since we live in a world of economic uncertainty and a world where debt outweighs the money supply by a wide margin, there will always be a period in the future when gold and the mining stocks become once again front and center as an important part of an investment portfolio.
Market Vane is an important Wall Street sentiment research group. Regarding the gold mining shares the per cent of bulls to bears is at an extreme. The level is at 45% bullish. For gold, this is at the lowest end of bullishness. The last time the bullish consensus was this low was mid-2001, the beginning of the major seven year bull market in mining stocks.
There are enough indicators to allow one to feel confident that the mining stocks are going to move significantly higher in the future.
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