RING - GDX: The Tide Is Turning Bullish

Summary

• The GDX has seen one of its most intense periods of weakness relative to the price of gold since the panic liquidation seen during the height of the Covid crash.
• The weakness has been in part caused by rising in oil prices, which have eaten into earnings, but the recent rise in the gold/oil ratio bodes well for a recovery.
• Both EV/sales and EV/operating cash flow ratios are below their 2020 crash levels, and close to their 2015 bear market lows.
• Strong long-term shareholder returns will only materialize if these revenues and cash flows translate into free cash flows, which will depend on whether miners can keep their capex costs down, but there has been a clear shift towards a focus on cost reduction and shareholder returns.
• The main risk facing the GDX in the short term comes from another global panic which causes a collapse in risk assets and a self-reinforcing surge in the dollar.

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