CDNX at 2003 Levels Despite ‘High’ Metals Prices

From the Chart Book. The view from 30,000 feet of the Canadian Venture Exchange Index or CDNX reveals a startling fact. Today, in September of 2011, the CDNX is trading at levels first reached eight years ago despite gold being more than $1,400 higher and silver being more than $35 higher in price.

The chart just below brings the notion into bright focus.

(CDNX, 10-year, monthly. If any of the images are too small click on them for a larger version.)

Continued…

The CDNX is home to, and indicative of, many of the smaller, less liquid and more speculative miners and explorers that we love to ‘game’ here at Got Gold Report.

By comparison, the larger, more liquid and better capitalized mining shares have done a better job of maintaining their relative-to-gold value in this Great Gold Bull market, but nearly all analysts agree the big miners are undervalued relative to metals prices. Just below is a similar chart of the Amex Gold Bugs Index or HUI for comparison.

(HUI, 10-year, monthly.)

With so much anxiety and concern about the future; with mind bogglingly difficult challenges facing policymakers both here in North America and in Europe amid festering discontent by the voters; with the memory of the 2008 Panic still fresh enough to be a huge drag on investor confidence, we reckon there are ample ‘reasons’ for the small mining company shares to be so inexpensive at the moment.

The 24-carat question looking ahead is if the small miners will remain so bloody cheap on a relative basis, or if they are instead staging for a reversion to the mean. Until we start to see more investor confidence, however, there are excellent bargains to be had. That goes for ordinary investors as well as for the larger predatory mining companies looking to purchase future feed stocks from the beaten-down juniors.

When we look at a simple ratio of the CDNX and the HUI, the two charts above merge into the depressingly weak ratio below.

(CDNX:HUI Ratio, 10-year, monthly.)

Clearly the small mining companies we often refer to as “The Little Guys” have been mistreated by a scared and troubled market.

We think just as clearly the Little Guys offer tremendous, compelling opportunity for traders and investors looking ahead, if, that’s IF, the world manages to hold itself more or less together. As it is the smaller companies seem to be discounting a bleak tomorrow, if relative price is any guide. Over time, however, we expect that the world will find ways to resolve the issues that have it so vexed at the moment. And, we figure that gold will continue to play a very important role as a store of value and as the best-respected international “currency.” We see more demand for gold not less.

Therefore we view now as a time for accumulation of undervalued resource company bargains in anticipation of a less-fearful investing public sometime in the future.