What Is Wrong with Gold Mining Stocks? - Real Time Insight
May 22 2012 - 9:00AM
Zacks
Although gold has been a solid performer in years past, the
yellow metal has started to fall back in recent months, dipping
below the $1,600/oz. mark as of late. This represents a nearly
$220/oz. drop from the metal’s 52 week highs, a disappointing trend
given the broad risk-off trade in the markets during the second
quarter of 2012.
Yet, while gold has been a weak place to put assets, the gold
mining space has been a downright miserable spot for investors over
the last six month period. All four of the major gold mining
ETFs—GDX, GDXJ,
GGGG, and PSAU—are each down
about 20% over the last half year, compared to a roughly 5.7% slump
in the price of gold bullion over the same time period.
Unfortunately, this recent slump continues a relatively long
history of underperformance for gold miners over the past few
years. In fact, when looking at the past five years, GDX (the most
popular and oldest gold mining ETF) has added about 16.7% while
GLD has more than doubled, gaining 134% over the
same time frame (see more on ETFs in the Zacks ETF
Center).
Given this, one has to wonder why anyone still bothers with gold
miners since not only do they often underperform precious metals,
but they do so with significantly higher levels of volatility as
well.
Still, some impressive values are beginning to appear in the
gold mining space as evidenced by some of the valuation metrics in
the big mining firms. For example, the PEG ratio for
Barrick Gold (ABX) is below 0.2, Goldcorp
(GG) looks to have EPS growth of about 18% this quarter,
while Newmont Mining (NEM) has a yield approaching
3%.
Despite these favorable metrics, it should be noted that the
segment does rank quite poorly from a Zacks Industry Rank
perspective-- the gold mining segment is in the bottom 20% from
this look— suggesting that more trouble could be ahead for the
sector. Nevertheless, there are some potential values beginning to
surface in what could be an oversold industry segment where stocks
are approaching 52 week lows across the board…
Why do you think gold miners have underperformed by so much as
of late?
Can they turn it around or will they continue to lag gold in the
second half of the year?
Let us know what you think in the comments below!
(Eric is long IAU and gold bullion)
BARRICK GOLD CP (ABX): Free Stock Analysis Report
GOLDCORP INC (GG): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis Report
To read this article on Zacks.com click here.
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