Erfle was speaking this past Monday (March 4) at the Prospectors & Developers Association of Canada (PDAC) convention, just as the gold price was heading toward the US$2,100 per ounce mark and into record territory.
While he’s seen disconnects between the gold price and gold stocks in the past, the circumstances were different.
‘I’ve never seen this much of a disconnect before while the gold price is breaking out,’ Erfle said. ‘I’ve seen … this much of a severe deficit twice before, when the gold price was threatening to break down to a much lower level.’
He mentioned the period in late 2015 and early 2016 when gold was on the verge of falling below US$1,000.
‘Now it’s threatening to break out above US$2,100,’ Erfle went on to say. ‘There’s something I follow called the HUI-to-gold ratio, and that’s basically the gold stocks in relation to the price of gold. A mean reversion happened in 2016 and at the March 2020 low as well, right around PDAC. So basically what it was is you had the HUI-to-gold ratio hit 0.09 in 2016, the first couple of weeks of 2016, and then 0.093 in March of 2020. And then it hit 0.094 last Wednesday (March 28). Meaning a gold stock mean reversion is about to happen. The last two times that happened, the mean reversion started and you had huge moves in many juniors and many miners within six months.’
Erfle also briefly discussed the opportunity in silver stocks, saying they are currently hated. ‘Silver’s a fantastic opportunity right now as far as the stocks are concerned, but you have to get into the right ones,’ he said.
Watch the interview for more from Erfle on gold and silver. You can also click here for our PDAC playlist.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.