Where's the Beef for Gold Equities?

By Frank Holmes

NEW YORK (U.S. Global Investors) -- Gold bulls have plenty of room to graze in the stockyard these days as the investing herd migrated to other assets during the market's steep climb in 2012.

For the fourth time in the past year, gold bears outnumbered the bulls in Bloomberg's weekly Gold Bull/Bear Sentiment Survey. In fact, the bears had the bulls outnumbered by almost two to one.

Today's growing slew of gold bears is a "buy" signal for contrarian investors like us at U.S. Global. Research from the gold team at Canaccord Genuity found that gold rallied about 10% on average during the month following each of these sentiment "crossovers."

This historical increase means that gold could potentially rally to the "high $1,700's per ounce," which Canaccord believes "would breathe some new life into the gold equities."

After a year of neglect from investors who favored bullion, gold equities need resuscitation. Going back to April of last year, gold stocks have been undervalued compared to bullion. I discussed this disconnect back in June 2011 and again in August.

This trend has been accelerating recently: At the end of March, the spread between the NYSE Arca Gold Miners Index and gold bullion was at the same extreme level it was during the 2008 credit crisis despite a much rosier global economic outlook. Going back the full decade of gold's bull run, this is quite a rare event.

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It hasn't been a complete drought for gold equity investors though, as there have been occasional spurts of relief over the past year.