With one day left in the month, September is shaping up to be the worst monthly performance for the senior gold miners (both the Market Vectors Gold Miners Fund (ARCA:GDX) and HUI are down roughly 18.5% for the month) since the dreadful month of June 2013:
HUI Gold Bugs Index (Monthly)
The gold miners are down 5 weeks in a row and the sector appears to be bottomless. However, until the December lows are taken out, the recent action can still be interpreted as taking place within the context of a large bottoming pattern:
Should the December lows get taken out, we could be in store for a brutal trip down to the 2008 financial crisis lows.
It is interesting to ponder the incredible 'boom & bust' cycle which the gold mining sector has experienced during the last six years. The 2008 crash in the mining space turned out to be a brief panic which resulted in a V-bottom and the sector would eventually go on to make historic highs during 2011 as the gold price reached nearly $2,000. Considering that gold fell below $700 during the 2008 market crash, it would be hard to fathom the sector returning to the depths of the 2008 crash lows. The fact that as objective market observers we are forced to consider such a possibility simply helps to illustrate just how bleak sentiment on the gold mining space is currently.
A slide from a recent Barrick Gold (NYSE:ABX) investor presentation helps to illustrate how the senior gold producers are finally beginning to get a grasp on costs and turn the tide in the other direction:
This means that the recent extreme selling in the sector is an indication that investors have little confidence in the future direction of the gold price and that many in fact are betting on the Goldman $1,050 forecast to come true. While gold may very well face some uphill sledding in the near term, a slide from a recent Newmont Mining (NYSE:NEM) investor presentation exhibits a decline in mine supply beginning next year and leading to a total supply deficit in 2017 onward:
The short term outlook is undeniably murky for the gold space, however, astute investors would be wise to look to the future with a calm, calculated gaze and appreciate that current valuations across the space indicate a high degree of pessimism that is quite likely unwarranted.