The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By Frank Holmes NEW YORK ( U.S. Global Investors) -- Gold bulls have plenty of room to graze in the stockyard these days as the investing herd migrated to other assets during the market's steep climb in 2012. For the fourth time in the past year, gold bears outnumbered the bulls in Bloomberg's weekly Gold Bull/Bear Sentiment Survey. In fact, the bears had the bulls outnumbered by almost two to one. Today's growing slew of gold bears is a "buy" signal for contrarian investors like us at U.S. Global. Research from the gold team at Canaccord Genuity found that gold rallied about 10% on average during the month following each of these sentiment "crossovers."
Canaccord says that, "sector weakness (less than one year) in the gold equities over the last six years has typically ended with "V" shaped corrections to the upside." Gold investors must be quick to "buy on the dips" since these sharp V-shaped corrections have been frequent.
Desjardins says the M&A trend in the gold sector should continue, given "growing cash hoards and a lack of new discoveries" of the precious metal. As one example of this ongoing worldwide trend, Bloomberg News reported that, "Chinese gold producers are vying for domestic and overseas mining resources," with two companies competing for two different gold mining companies located in the eastern province of Shandong.
Big miners have historically purchased the known assets of their rivals as a way to increase reserves rather than deal with the heartache and headache of drilling core samples and filling out permit applications. Large-scale gold production is a complex and costly process involving digging, transporting, crushing and chemically treating massive quantities of rock to get at small amounts of gold. In fact, a commercially viable deposit could contain just a tiny fraction of an ounce of gold for every ton of mined rock. If you're curious about this phenomenon and want to learn more, check out my book The Goldwatcher: Demystifying Gold Investing where I go into greater detail.
The cold shoulder from investors has also given way to a promising trend in the gold space -- growing dividend payouts. We believe this is one can't-miss trend. We've been paying close attention to this as it has developed over the past few years, because through monthly or quarterly dividends, investors can receive income while they wait for share prices to appreciate.
To capture the income potential, we've adjusted the portfolios of USERX and UNWPX to hold some of these dividend-payers. Many of these holdings pay a monthly dividend that is higher than the two-year government note, have rich balance sheets and receive royalties from all over the world on their gold mines. We encourage investors to think contrarian: Eat up all you can while the pasture is wide open, because as the chart above shows, when gold equities reverse, it happens quickly. Watch Frank Holmes' "Can Gold Continue to Glitter?" interview on CNBC now.