(Gold) Miners, a contrarian play?

Most people will know that gold has come down quite a bit lately, about 30% from its top.

But they might not know that the gold miners have come down much more in value.

Below is the chart of Barrick Gold, its share is down 70% since its top of $55 in 2011:

Well known gold funds like the ones from Van Eck and Blackrock have also faired badly, they are about 50% down over the last 2 years.

Is the sell off overdone? The price of gold has come down, which will surely have an effect on the profits. Also, many miners have bought assets in the last years, some of these assets have to be written down in value, giving one-off negative surprises.

However, I think that in the long run there will be inflationary pressures, and that the price of gold (and other precious metals) will rise again. For the blue-chip miners, this sell off might not be all bad news, competitors with insufficient cash might be put out of business.

I have started to pick up some of the miners, both the gold miners and the more general ones (like BHP). Although their share prices might easily fall further, in the long run I expect them to do ok.

Business Insider has an interesting info graphic on their website, explaining the cost of gold mining and why there are not many gold miners in Asia: there are not many mines (some are in Russia), and the cost is relatively high.