Mining Stocks Getting Exactly What They Need
Friday, September 7th, 2012
By Mitchell Clark, B.Comm. for Profit Confidential
Gold and silver prices are rising, and this is exactly what mining stocks need. After a well-deserved correction in gold prices, gold stocks were hit pretty hard as institutional investors abandoned the sector. Just like the spot price, speculating in gold stocks isn’t for the weak-stomached; volatility is standard in precious metals. But with volatility comes the opportunity for greater returns—if you buy the right companies at the right time.
Silver prices are currently moving nicely high—much stronger than gold. Silver prices have lagged spot gold for quite a while now, and some of the best values that recently developed on the stock market are silver stocks. Everyone says silver prices have more room for advancement, but I’d still own both.
Gold and silver prices are going up in anticipation of a third round of quantitative easing (QE3), or some form of monetary policy, by the Federal Reserve. Most Wall Street investment banks are now predicting that spot gold will be well over $1,800 an ounce by the end of the year. With all the turmoil we’re going to have to deal with next year, owning some gold and silver will likely be a good bet. What’s required for gold and silver stocks to really advance is the return of institutional investors to the sector, which will happen if gold and silver prices keep ticking higher.
I want to repeat my view that there are actually very few attractive gold and silver mining companies on the stock market at this time. Costs have been rising substantially at many precious metals companies, and profitability at a lot of companies has been hit. Like my view for other stock market investments, I’d stick with existing winners among gold and silver stocks. These are the more expensive, higher multiple stocks within the group, but they have the best properties and the best prospects for profitable growth going into 2013 and continuing into 2014. There are actually very few of these companies.
In the large-cap space, companies like Barrick Gold Corporation (NYSE/ABX), Newmont Mining Corporation (NYSE/NEM), and Goldcorp Inc. (NYSE/GG) have all had a very tough year on the stock market. Despite the fact that these large-cap companies pay a decent amount of dividends, their share prices are still in the doldrums and price-to-earnings (P/E) ratios aren’t anything special. The mid-tier gold producers, however, are doing relatively much better on the stock market, and that’s where the best opportunities are for new investors in the precious metals sector.
Gold and silver prices are going up, and it’s great to see renewed action in the sector. As a group, they recently came out of a meaningful consolidation that was brought on by a well-deserved correction in spot prices. (See “Gold Stocks Becoming a Great Value in This Market.”) Gold and silver stocks are a group that you really can seek to buy low and sell high. But it takes a lot of courage to step up and buy a stock that has just hit its 52-week low. Right now, gold and silver prices are poised for further advancement, and even if they take a break before the end of the year, fiscal fundamentals in the U.S. economy favor rising prices.