As shown in Exhibit 1, the GDXJ index of smaller cap gold companies (up 129% YTD) is holding near highs of the year despite a recent pull back in the gold price, and since May has outperformed the GDX index of larger cap names, which has risen by 89% YTD. Similarly, junior gold companies we track are currently trading at an average EV/oz valuation of $64/oz versus the YTD high of $74/oz seen in mid- August, the highest level since the $70/oz observed in 2011 and well above the $20–30/oz range of the 2013–2015 trough (Exhibit 2). We believe these valuations are in part due to a scarcity of higher quality gold projects, and we would expect a pick-up in M&A activity and the junior gold companies to continue to post strong relative returns during the remainder of 2016.

Eoin Treacy's view

Here is a link to the full report. 

 Precious metal prices have been confined to a reaction and consolidation, of this year’s impressive early gains, for the last few months with many instruments having already completed reversions to the mean. With the Fed and BoJ meetings tomorrow it is reasonable that investors are not rushing to initiate long positions with so much debate about what exactly central banks have planned and the headwind higher rates would pose for precious metal related instruments. 

Nevertheless, if the decision is in fact to stand pat, that would remove a short-term source of uncertainty which could act as a bullish catalyst for the sector. The Market Vectors Junior Gold Miners ETF bounced emphatically from above $40, representing the region of the trend mean, at the beginning of the month. It has returned to test that level over the last week but a sustained move below $40 would be required to question the medium-term recovery potential.