Gold shares remained lower in early afternoon trading on Wednesday, as the Market Vectors Gold Miners ETF (GDX) was down by $0.89, or 2.1%, at $41.98 per share. The sell-off came despite stability in COMEX gold futures, which hovered near unchanged at $1,579.30 per ounce.
The sector was dragged down considerably by Goldcorp (GG), which plummeted as much as $3.75, or 10.2%, to $33.00 per share after slashing its 2012 production forecast and raising its cash cost guidance. Other notable gold miners heading south included Agnico-Eagle Mines (AEM) and Eldorado Gold (EGO) – which fell by 2.0% to $37.95 and by 3.6% to $11.03 per share, respectively.
With today’s weakness in gold equities, the GDX reached its lowest level since May 23rd. Furthermore, the gold stocks ETF extended its monthly and year-to-date losses to 6.2% and 18.4%, respectively.
Despite the sector’s underperformance relative to the yellow metal – which remains higher by 1.0% in 2012 – commodity strategists at UBS issued a bullish call on gold equities in a recent report to clients.
UBS began by noting that “Our five signals for commodities and miners keep us cautious on the sector. We anticipate another leg-down in commodities and mining stocks before sufficient stress emerges in markets to force a decisive policy response and create an attractive buying opportunity.”
Nonetheless, as it went on to discuss gold specifically, the firm stated that “We believe that investors will buy gold and gold equities early this cycle. In our view it is right to move just ahead of the broader investor community, and buy gold and gold equities now.”
However, the firm did not mention particular gold shares because the report was prepared by its commodities department, rather than its equity research group – which focuses on individual companies.
“Clearly, buying gold early into a downturn carries greater risks and will be volatile,” UBS added, “Consequently,we advise investors wishing to go long gold and gold equities to hold a short or underweight copper and copper equity position against it. We anticipate positive absolute returns from both sides of the trade in the coming months, but we also expect the copper position to dampen the volatility.”
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