An Opportunity to Cash in on Gold Miners
An Opportunity to Cash in on Gold Miners by Matt Badiali – Banyan Hill
Gold prices are fickle.
Gold is the one natural resource that confounds most investors. It’s an anomaly. We can make good estimations of the direction of oil, copper, lead and zinc prices based on supply and demand. We can’t with gold.
That plays hell with mining stocks, as I’ll show you.
Where most natural resources are consumed, gold is not. Nearly all the gold ever mined remains in circulation today. That means that the new supply of gold coming from mines is practically a rounding error on the total volume. Each year is a small addition to the total supply.
However, the gold price is still subject to the tides of supply and demand … just from much larger sources.
An Unpredictable Metal
What gold is, to the market, is a measure of confidence in currencies around the world. As Americans, if we are happy with the U.S. dollar, we own less gold. If we are worried about the devaluation of the dollar (inflation), we buy more gold. It works the same in all countries and currencies.
That unpredictability makes investing in gold miners even more difficult. It was compounded lately by the gold price’s deep fall from 2011 to 2016. It fell below the price at which most miners can produce gold profitably.
As the gold price rebounded in 2016, so did the mining stocks … but in 2017, the gold price and the gold miners’ stock prices aren’t moving together anymore.
Today, the price of gold is up over 20% since January 2016. That’s good news, but it is 10% below its August 2016 high of $1,375 per ounce. In 2016, giant gold miners such as Goldcorp Inc. (NYSE: GG), Newmont Mining Corp. (NYSE: NEM) and Barrick Gold Corp. (NYSE: ABX) soared as the gold price rose.
Where gold prices went up 30%, Goldcorp rose 75%, Newmont shares soared over 150% and Barrick stock climbed nearly 220%.