"Friday's Commentary included a MS report on Miners. MS postulates that Gold Miners are not attractive due to PE compression...they also predict a decline in the price of Gold.

"QUESTION: what are your views on the attractiveness of the big Gold Miners...and your guess for the future gold price?

David Fuller's view Few, if any, sectors are as volatile as gold mining shares. This historic chart shows gold futures (GC2) dating back to mid-1975, with an overlay of the Philadelphia Gold & Silver Index (XAU) for which we have data commencing in 1984.

My recollection of gold shares in the late 1970s is that most lagged well behind bullion as it soared to the 1980 peak. However I welcome either conformation or a correction from others with either a better memory or more data.

It makes sense that gold shares would lag behind an accelerated rally in bullion for two reasons: 1) When bullion prices are high, gold miners shift production to lower grade ore to prolong the life of the mine; 2) Experienced investors recognise an overextended market and lighten positions.

Gold bullion has certainly not seen the eventual parabolic acceleration that Fullermoney eventually expects for this cycle but it had become overextended relative to its MA in April of this year when silver was reaching bubble proportions and global stock markets were somewhat overstretched relative to their MAs. No wonder gold shares have fallen over the last two months.

Today, gold bullion is very steady, albeit still in a period of seasonal underperformance. On average, global stock markets have experienced a correction to their MAs and the NYSE Arca Gold Bugs Index (HUI) has steadied near the important area of lateral trading and the psychologically significant 500 level. This week's upward dynamic to date is encouraging, although it needs to hold.

In conclusion, I think gold miners are somewhat oversold relative to bullion and I would rather buy than sell them, despite inevitable PER compression due to the mining of lower grades of ore and rising costs. Interestingly, silver miners rebounded very strongly yesterday (see Eoin's review below).

As a general strategy, the time to take profits in big-cap gold shares is when bullion's uptrend is clearly overstretched on the charts. The worst time to own them is when bullion is in a significant downward trend, as we last saw in 2008. The best time to buy gold shares is when bullion shows signs of bottoming following a significant decline (4Q 2008).

A further stock market correction during this period of seasonal underperformance could delay gold's next advance but downside risk is probably limited to further mean reversion towards the rising 200-day MA. That would weigh on gold shares for a while longer. Conversely, if stock markets have mostly completed their corrective phase, then the closer we get to 4Q the more likely it will be that gold bullion will be leading gold mining shares higher.

Long-term targets are pure guesswork rather than analysis, and mainly issued to attract attention. Fullermoney does not do that. However, we have been bulls of gold bullion since it showed evidence of bottoming out in 2001. We have been saying that it was in a secular bull market for nearly ten years. We still think that bullion will move meaningfully higher, ending in a feeding frenzy and parabolic acceleration. Higher interest rates will eventually end gold's secular bull market, just as we saw in 1980.