the XAU remains a buy. or are you trying to say that one day's decline proves anything? the PoG went down as well, nevertheless, the PoG/XAU ratio remains at an historic extreme. Bob posted earlier that if the ratio were to return to its 16-year average, the XAU should be at 74 at current gold prices. the conclusion is that the XAU already discounts a lower gold price and offers therefore a good risk/reward profile.
Your analysis is flawed {see previous comments that XAU and POG are not correlated}, and thus your conclusion is suspect. You should restate the conclusion as thus:
the conclusion is that the XAU already discounts a lower EARNINGS and offers therefore a dangerous risk/reward profile going forward due to lower capital returns as compared to safe haven investments such as treasuries. And THUS the XAU ratio is skewed to a lower ratio. The same situation exists today as in mid 98, but since the XAU is now based on difference components the actual XAU may already be BELOW the mid 98 reading based on the same POG. Should the three majours components reach their previous lows again and the POG hits $245, the XAU will surely reflect mid 30's results. It can be seen that such stocks AU: ANGLOGOLD, which accounts for nearly 18% are near the Aug 98 lows. As well as PDG: Placer Dome 14.44% Yet some companies such as NEM are in a tremendous downtrend and are quickly reverting to their AUG 98 lows. In deed only ABX is outperforming the XAU sector {at this moment}. Ironically ABX is the most hedged, But hedges can rapidly be offset buy forward buying, future buying or spot gold buying... But why bother when the supply of gold is overhanging the markets
The XAU is at risk... you are neglecting reality. Never forget that a PE ratio has earnings as it main factor. But what holds much of the value of these companies is Book Value. Beware the potential of downgrading the reserve assets of these companies based on the premise that going forward the POG may be unable to acclaim value. A lower reserve asset valuation will undermine the BV, bond ratings and thus lower the PE.
Hutch
PS: Expect downgrades, again. |
