Gold mining stocks haven’t looked this attractive in four years

A simple chart shows that gold mining stocks potentially present a better buying opportunity now than they have at any time over the past four years.

Frank Holmes has a fascinating post over at WallStreetPit called Where’s the Beef for Gold Equities? In it, he urges investors to “think contrarian: Eat up all you can while the pasture is wide open, because … when gold equities reverse, it happens quickly.”

We all know that gold mining stocks have grossly underperformed the spot price of gold recently. What you might not know is that gold mining stocks (via the NYSE Arca Gold Miners Index) haven’t underperformed spot gold this badly since the very height of credit crisis in 2008. Reference Frank’s chart for proof:

It’s evidence that gold mining stocks potentially present a better buying opportunity now than they have at any time over the past four years.

“The cold shoulder from investors has also given way to a promising trend in the gold space—growing dividend payouts,” Holmes writes. Newmont Mining Corporation (NYSE:NEM), for instance, has started paying dividends with a yield that’s based on the current price of gold. When gold goes up, so does NEM’s dividend payout. The stock’s currently yielding 2.88 percent.

Our new book, The Top 500 Gold and Silver Mining Companies, is filled with lists that compare gold and silver mining companies by things like dividends, amount of gold and silver in the ground, and recent stock price performance. You can find it on Amazon.


How to pick gold stocks that outperform the market

One of my favorite methods for discovering unheralded gold mining stocks is browsing through the holdings of large gold investment funds to see what stocks they’re gobbling up.

1) Don’t bet the farm on a junior mining stock. When you first start learning about investing in gold mining stocks, you’ll hear these phrases tossed around a lot: junior, mid-tiers and majors. The major gold and silver producers are the Exxon Mobils of the industry. Companies like Barrick Gold Corporation (NYSE:ABX), Goldcorp (NYSE:GG) and Newmont Mining Corporation (NYSE:NEM), for instance, all have market caps north of $30 billion. They’ve got numerous projects already producing gold and dozens of other projects and partnerships in the works. If gold prices collapse, they should weather the storm better than smaller, more speculative stocks.

Below the majors, you’ve got mid-tier companies that have brought at least one mine online or are very close to pouring gold with gobs of cash reserves in the bank and proven reserves in the ground. A promising mine in a politically stable country is as good as money in the bank for a lot of mid-tier miners as they’re solid buyout targets for the majors.

Below the mid-tiers, you’ve got juniors. They’re the small, thinly-funded, living-on-prayer-type companies (typically with market caps less than $2 billion) that buy up interests in large tracts of land, then start the long process of assaying the land for provable reserves. Know that when you’re investing in juniors, you could lose money just as easily as you could make it. The results of pre-feasibility studies can make or break a company – and you want to make sure you’re not broken along with a risky stock. Mix your gold stock holdings between majors, mid-tiers and juniors.

2) Make sure the execs have top-notch resumes. If you’re going to pour your cash into an unproven gold stock, take the time to find out who’s running the company. Almost all mining stocks have web sites touting the experience of the company’s employees and directors. Ideally, those managers, board members and geologists should have long track records with experience at major or mid-tier mining companies. There should be more than a handful of employees on the payroll, too. Some sites recommend only investing in companies with at least 10 employees.

3) Pay attention to the numbers. Kenneth J. Gerbino at Gold-Speculator offers some guidelines when it comes to evaluating just how great that new mining discovery is. A mine with less than 2 million reserve ounces, he argues, is likely not worth the investment it will cost to mine it (although, keep in mind, Gerbino wrote those numbers in 2009 when gold was much cheaper). When it comes to mines, bigger is better. Ten million tonnes at an open pit gold mine sounds large, but it’s not. Three-hundred million tonnes is large. Each of those tonnes should yield at least 1 gram of gold (or, better yet, 2 grams).

4) Location is everything. Look for gold mining stocks that are located near old or existing gold mines to lower your risk and increase the probability that your pick will hit pay dirt. It’s not without reason that much of the mining activity in the world happens in just a few locations. Special geological conditions are required for the formation of gold, and those conditions occurred in a relatively small number of places around the world. China, South Africa and Australia currently produce more gold than anywhere else in the world (although the U.S. and Russia aren’t far behind).

5) Follow the mutual funds. One of my favorite methods for discovering unheralded gold mining stocks is browsing through the holdings of large gold investment funds. See which stocks large gold funds like Tocqueville’s Gold Fund, Oppenheimer’s Gold & Special Minerals Fund, Midas Funds and others are holding. If they initiate a large new position in a relatively unknown gold mining stocks, chances are, you can hop on for the ride.



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15 gold price predictions for 2011

A number of influential traders and executives have publicly weighed in with gold price forecasts for 2011. Here’s a recap of the more memorable predictions from 15 trading professionals and individuals.

A number of influential traders and executives have publicly weighed in with gold price forecasts for 2011. Here’s a recap of the more memorable predictions:

Chuck Jeannes: Goldcorp Inc.’s (NYSE:GG) CEO sees gold at $1,500 an ounce as “easily achievable,” and he could see the price eventually rising as high as $2,300 if and when inflation sets in (The Street)

Dennis Wheeler: Coeur d’Alene Mines Corporation’s (NYSE:CDE) CEO “would not be surprised” if gold prices rose to $1,500-$1,600 an ounce in 2011 (Reuters)

Sean Boyd: Agnico-Eagle Mines Limited’s (NYSE:AEM) CEO argues gold at $1,600 an ounce in the next 12 months would “not be a stretch” (Reuters). “Gold will ultimately go above $2,000 and I think it’s going to go in steps so I could see $1,600 this year,” he tells The Street.

Mark Cutifani: The CEO of AngloGold Ashanti Limited (NYSE:AU) see gold range-bound between $1,300 and $1,500 an ounce in 2011 (The Street)

Rick Rule: The founder of Global Resource Investments, which was acquired by Sprott Inc. (TSE:SII), expects “some event-driven spike in metals prices.” “I have no earthly idea where gold will close, but to be a good sport and play the game, I’ll say $1,750,” he says (SeekingAlpha)

Aaron Regent: CEO of Barrick Gold Corporation (NYSE:ABX) tells The Street he believes the “forward curve would suggest a gold price in the $1,500 range” (The Street)

Ian McAvity: The founder of the Central Fund of Canada (CEF), Central Gold Trust (GTU), and Silver Bullion Trust (SBT.U) expects a “monetary panic” in the dollar or euro to push gold to $2,000-$2,400 per ounce this year or in 2012 (SeekingAlpha)

Mark Bristow: The CEO at Randgold Resources Ltd. (NASDAQ:GOLD) expected gold to rise as high as $1,500 an ounce (The Street)

Morgan Stanley (NYSE:MS): The investment bank has set a gold price target of $1,512 an ounce for gold in 2011 (The Street)

Ross Norman: The co-founder of is looking for gold to trade between $1,350 and new all-time highs of $1,850 per ounce (SeekingAlpha)

The Street reader survey: Of the almost 6,000 people who have taken The Street’s gold poll, 47 percent believe gold prices will finish between $1,500 and $1,800 an ounce in 2011 (The Street)

James Turk: The founder and chairman of online precious metals vendor sees gold sprinting much higher “probably in the first half” of this year to $2,000 per ounce (SeekingAlpha)

Charles Oliver: The senior portfolio manager of the Sprott Gold and Precious Minerals Fund, Oliver sees currencies around the world continuing to plummet in 2011. He expects that will push gold up to $1,700+ by the end of the year (SeekingAlpha)

Adrian Ash: A researcher at BullionVault sees individual savers moving into gold bullion this year as negative real interest rates erode buying power. That could push gold 20 percent higher this year to $1,695 an ounce (SeekingAlpha)

Richard O’Brien: The president and CEO of Newmont Mining Corporation (NYSE:NEM) sees gold eventually rising to $1,750 an ounce by 2012 thanks to the protection the metal provides against inflation. In 2011, he sees gold trading between $1,350 and $1,500 an ounce (Reuters)



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