Crushed Gold Miners Could Be About To Shine

 forbes.com  03/26/2020 12:25:19 
AUSTRALIA PERTH MINT

One kilogram gold bars sit on a tray at the Perth Mint Refinery, operated by Gold Corp., in Perth, ... [+] Australia, on Thursday, Aug. 9, 2018. Demand for coins and minted bars was a little sluggish over the past year as Donald Trump's earlier win in the presidential poll prompted investors to divert funds into stocks, bonds and property, said Perth Mint's Chief Executive Officer Richard Hayes on Aug. 8. Photographer: Carla Gottgens/Bloomberg

2018 Bloomberg Finance LP

Get ready for a rally in the gold patch.

Over the past month, gold mining stocks got crushed along with most other assets.

But the divergence of how the miners performed with what happened to the price of gold bullion has now become so great that it seems to offer rare opportunities for daring investors. The falling price of oil, and the likely coming rally for gold, only adds to the relative attraction of such mining companies.

Over the month through Wednesday, the SPDR Gold Shares (GLD) exchange-traded fund which holds bars of solid bullion has barely moved, according to Yahoo. Meanwhile, the VanEck Vectors Gold Miners (GDX) ETF which tracks a basket of precious metals miners, is down 12%.

Underperforming gold mining stocks are presenting a rare opportunity for investor, according to a recent statement from Steve Land, co-head of the Franklin Gold and Precious Metals Fund.

Rare Opportunity

The statement from Land explains in further detail:

  • Despite the positive outlook, many gold equities have underperformed the broader market as the industry has struggled to find the incremental buyer to offset the index related selling pressure. Historically this type of dislocation does not last long. [My emphasis.]

Or put another way, the fact that the miners got crushed when gold didnt is an unusual event and one that could be a useful moment for investors who want gold stocks in their portfolio.

Land points out that lower oil prices, which have dropped precipitously this year will benefit gold mining firms because energy represents a significant portion of mining costs.

Miners use diesel fuel, which is made from oil, to run their trucks and other machines. The cost of that energy is often 20% or more of total costs, according to Franklins Land.

Gold to Rally More This Year

Separately, there are reasons to believe that gold itself will continue to rally.

CPM Group expects gold prices to continue on their upward trajectory during 2020 and to reach new record highs in the medium term, states the recently published CPM Group Gold Yearbook 2020.

It points to the largely ineffectual trade agreement between the U.S. and China, the UK leaving the European Union, and of course the coronavirus pandemic, as factors that will remind investors at large as to the benefits of owning gold. In turn, that should keep bullion prices rising.

Double Dose of Good News for Gold Miners

For the miners, rising gold prices mean more revenue per ounce, while the lower price of fuel will mean reduced costs per ounce of gold produced.

In other words, gold stocks may be a good bet right now.

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