Gold Stocks “Starting to Outperform” the Yellow Metal
By jturbin | November 1, 2012 5:58 AM EST
GOLD STOCKS NEWS – Gold stocks surged higher on Wednesday as the Market Vectors Gold Miners ETF (GDX) jumped by as much as $1.69, or 3.3%, to $52.93 per share. The rally in gold stocks sector and the GDX was fueled by gains over the prior two days in Canadian-listed gold shares and a modest advance in precious metals. COMEX gold futures rose by 0.9% to an intra-day high of $1.726.60 per ounce before paring their gains this afternoon.
With today’s strength in gold stocks, the GDX cut its loss in October to 1.4% – compared to a 3.6% loss for the price of gold. The smaller decline represented the third consecutive month in which the gold stocks ETF has outperformed the yellow metal. The recent improvement in gold stocks is a particularly encouraging sign for a sector that had significantly lagged gold prices for not only the first seven months of this year, but the majority of the past several years.
David Christensen, CEO of ASA Ltd. – a California-based firm that manages $550 million and invests in precious metals companies – stated in comments to Bloomberg that “The gold shares are starting to outperform the gold price. As the companies begin to tighten their operating constraints and generate more cash flow, we’re seeing some of that turnaround in the valuations in the industry.”
Christensen added that by concentrating much more on profitability versus simply production growth – which has often entailed considerably higher operating costs – gold stocks have finally begun to address the lag in valuations relative to the yellow metal.
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One of the largest advancers among gold stocks today was GDX component Yamana Gold (AUY), which soared $1.31, or 7.0%, to $19.99 per share. The rise in Yamana was due in large part to the company’s better than expected quarterly earnings report released earlier this week. The Canadian-based gold miner generated record revenue and production, in addition to adjusted earnings per share of $0.24 that beat the median estimate among Wall Street analysts.
Following Yamana’s earnings results, Scotia Capital analyst Tanya Jakusconek reiterated her Sector Outperform rating and $25.00 price target on AUY. Jakusconek noted that Yamana’s quarterly production of 310,000 gold equivalent ounces at total cash costs of $531 per ounce were both better than her forecast of 298,000 ounces at $535 per ounce.
Other notable gold stocks in the black this afternoon included AngloGold Ashanti (AU) and Kinross Gold (KGC) – which climbed by 4.2% to $33.81 and by 3.8% to $10.01 per share, respectively.