Batten the hatches: continue shorting gold stocks, and buy . . .
JOHANNESBURG – By now, anyone or anything not predicting that the gold bullion price will continue rising has been hunted off the face of the planet. Never mind a decade of bull markets for the yellow metal (and a near fivefold rise in prices), GFMS this week reckoned the metal could broach $1 600/oz by year-end.
An all time record of $1 431/oz was seen less than two months ago. The strange thing, for which there is no ready explanation, is that investors (and speculators, as always) are broadly selling off listed gold stocks. The metal is currently trading just 4% below its record level, but listed gold stocks have been clobbered for more than a month.
The US-quoted SPDR Gold Shares ETF, the world’s biggest gold exchange traded fund (ETF) (market value: $56bn), tracks the bullion price, as ever, and is just 4% off its highs.
For miners of the metal, stocks prices look painfully out of synch. Toronto-based Barrick, the world’s biggest gold digger by value and output, has surrendered 15% of its NYSE-quoted market value, now at $47.4bn, since early December, when dollar gold bullion most recently peaked.
Just a few of the world’s Tier I gold stocks have held up: Russia-based Polyus (its stock price always lags on both the way up, and on the way down), and, perhaps, Johannesburg-based Gold Fields, when measured by its rand-based quote.
At the global Tier II gold level, the sell offs have been heavier; as much as 34% in the case of US-quoted Golden Star, which has interests in West Africa. Long-time London favourite Randgold Resources, which focuses on Africa, has surrendered 24% of its Nasdaq-quoted value, to levels previously seen as far back as May 2010.
Further down the scale, among gold developers, the losses have been even deeper. Canada-quoted Greystar, which holds a big deposit in Colombia, has shed nearly half its value over the past year. However, before investors, and especially speculators, fall into deep fits of deep depression, there are 100 listed gold stocks around the world (with a minimum market value of USD 20m) that have lost only 12%, or less, of their value.
A good number are positively flying: Australia-quoted Kingrose Mining can be counted among the leaders, but it also has interests in silver and zinc. Canada-quoted Continental Minerals is also in good demand, but its key interests, located in China, are in copper-gold. Then again, there are also “pure gold” focuses which are flying, such as Australia-listed Gryphon Minerals, which focuses on West Africa.
If cash is being taken off the gold stocks table, where is it going? There is a discernible trend of continued switching into copper stocks. Freeport-McMoRan ranks as a Tier I global gold stock, but is typically classified as a copper stock, given its status as the world’s biggest publicly traded copper miner, and No 1 in production after Chile’s Codelco.
Measured against global Tier I gold stocks, Freeport-McMoRan’s stock price has experienced but little selling pressure. Copper has rallied from around $3.00/lb in mid-2010 to recent all time records of $4.50/lb. At these prices, copper miners are spewing cash; few bona fide miners of the metal are unable to make cash profits at $1.50/lb. Prevailing prices represent a bonanza.
Much of the story is summed up by Freeport-McMoRan’s market value of $56bn eclipsing the $47bn held by Barrick. Beyond the attraction of copper stocks, cash continues to be pushed into the listed stocks of big diversified miners, most of which produce copper. For now, it seems that investors and speculators are somewhat complacent about listed gold stocks; they may need some kind of catalyst to once again redirect their attention.
Write to Barry Sergeant: barry@moneyweb.co.za
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