Mining Stocks Are Still Lagging The Precious Metals

The leading gold and silver mining stocks have recently lagged the precious metals themselves. Sometimes the leading mining stocks will lead the metal, however, they have been lagging the precious metals since mid-March 2011. Gold and silver are making new highs this morning while the Market Vectors Gold Miners ETF(NYSE:GDX) is still trading below its December 2010 high which was $64.62 a share. This morning the GDX is trading higher by $1.45 cents to $63.10 a share. The GDX will have intra-day resistance around the $63.50 level.

Some leading mining stocks that are trading higher this morning are Newmont Mining Corp.(NYSE:NEM), Randgold Resources Ltd.(NASDAQ:GOLD), and Goldcorp Inc.(NYSE:GG). These stock will usually trade in tandem with the GDX, therefore, watch for pullbacks when the GDX comes into its resistance level.



Nicholas Santiago
InTheMoneyStocks

Thanks for the graph.

I'm confused by the relationship between the market or spot value of gold and silver (or any commodity for that matter) and the value of mining shares.
Basic logic would say that there should be a correlation between the two and while I can appreciate there are many variables and complication surely if gold prices are approaching $2000 dollars and at a guess it costs a mining company no more than between $500-1000 to produce 1 oz. of gold then they should be raking it in and so should their shares?

If the price of grain goes up all the farmers buy new tractors or go on holiday right?

Cheers

Jon

jon the pom said:

Thanks for the graph.

I'm confused by the relationship between the market or spot value of gold and silver (or any commodity for that matter) and the value of mining shares.
Basic logic would say that there should be a correlation between the two and while I can appreciate there are many variables and complication surely if gold prices are approaching $2000 dollars and at a guess it costs a mining company no more than between $500-1000 to produce 1 oz. of gold then they should be raking it in and so should their shares?

If the price of grain goes up all the farmers buy new tractors or go on holiday right?

Cheers

Jon

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The simplest explanation is usually the correct one. Gold stocks are still -- stocks. Stock prices go up when sentiment is good, and go down or stay stagnant when sentiment and confidence is down (like now). Gold behaves the opposite to this.

If its like the last gold bull market, then gold stock prices will start to rise soon after the bull market starts declining. This makes perfect sense because by that time people are obviously becoming confident again.

Two things,

The gold producers would probably have the gold price hedged, so would be using their gold production to fill contracts negotiated months ago at lower prices,

And also even though they own lots of gold it will only be produced slowly over say 20 years, so any investor worth his salt would not value the company based on this years production profits when the price of gold is Lilly to fluctuate over time and will probably be lower in 12 months

Maybe I've got the basics wrong.

If gold prices are high then the company makes more money when it sells its gold and the share price goes up in value? Unless it hedged the price years ago at the exploration stage when gold was worth less?

Theres so much current demand at the moment and I dont see it in the mining share prices, like I said I'm missing the link here

Maybe the demand for paper gold is far higher than physical gold

Maybe I've got the basics wrong.

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Gold miners and explorers are trending up and are higher than they were years ago. Did you miss the boat?

debtfree said:

Yes they sound like sneaky little buggers ......

Quarterly Report after trading hours on the 30th with just over the 2 quarters of funding needed not to answer the cash flow questions then, the next morning before trading opens they come out with the Private Capital Raising. Poor shareholders are caught out.


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Sean K said:

I would guess they've raised triple their MC. I'm not sure it's grown enough to warrant a major taking over, hence the land grabs. The last MRE upgrade after 2 years of drilling was almost the last straw for me, but I'm hoping they simply ride the copper narrative. Eventually.

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peter2 said:

The 50:1 consolidation has also disguised the multiple cap raises and the many issued shares.

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Does the number of recent CR's in the small mining sector explain why the big end of town has not been as invested even though AU and CU price have increased. ?

Are the small miners caught out with low capital for a possible boom and will the sp's suffer in the short term as a result. @debtfree @peter2 @Sean K

I'd be interested in your thoughts.

gg

We'll never know the real reason that investors demand for the miners haven't matched the demand for their underlying commodities. However it's likely that the miners were hit by rising costs (inflation) that reduced their margins and investors held off buying. The price rally of their commodities probably only offset their rising costs and didn't improve their margins. It seems that their costs have stopped rising now and investor demand is slowly improving as the commodity rally continues.

I think that currently investors/instos are risk adverse, worried about further rate rises, inflated costs, environmental activism, delays in permit approval, indigenous approvals (the red/green tape is huge) and prefer to buy tier one producers rather than non producers.

Companies with probable tier one resources like CHN, RTR et al require huge amounts of capital and it isn't available. Probably due to the risk of future indigenous/environmental activism. Gov'ts keep changing the rules making future plans impossible to rely on.

Small explorers will always need more capital. It's hard judging which one is using the capital wisely or just spending it because it can. Unfortunately the ASX is rife with companies that add little value with the capital they raise. I do think that ongoing rising share prices help with this distinction (don't dump after the pump).

Edit: I also think that current tier one producers will increasingly look to buy good quality undeveloped resources to increase their production. Small companies with reasonable resources will have to market and prep themselves for sale. CEO greed often hinders this activity.