The gold price fell $0.82 to $1,066.73 as the price of gold was unable to build on Friday afternoon’s $22 recovery. The weaker gold price pressured gold stocks, which as measured by the GDX, the Market Vectors Gold Mining ETF, declined $0.69, or 1.6%, to $41.72 in mid-day trading. Traders took profits in gold stocks as improved earnings from Randgold Resources (GOLD) and Harmony Gold (HMY) - along with the disclosure of a Chinese investment in Canadian-based Kinross Gold (KGC) - were not enough to fuel a rise in the GDX.
Investors that have sought leverage to the gold price through gold stocks will be watching the next two months closely as earnings releases from many of the world’s largest gold mining companies are announced. The most recent gold miners to report were Randgold Resources and Harmony Gold - two of the largest gold producers in Africa. Both companies reported higher profits due in large part to the rising price of gold. Randgold, which owns gold projects in central and West Africa announced a 79% increase in earnings and a 14% rise in gold production in 2009, primarily the result of record gold production at its Mali-based Luolo gold mine. In early afternoon trading shares of GOLD were lower by $0.61, or 0.9%, to $69.07.
South African-based Harmony Gold (HMY), which controls a number of gold projects throughout South Africa, reported a 44% increase in cash operating profit in the most recent quarter in spite of a 1.2% drop in gold production. Harmony attributed the stronger earnings to a higher South African rand gold price and lower cash costs. In sympathy with weaker gold prices, shares of HMY fell by $0.05, or 0.5%, to $9.41.
Also notable in the gold mining equity sector was news that China Investment Corp. (CIC) - the $300 billion sovereign wealth fund of China - holds $9.6 billion worth of U.S.-listed holdings in its first ever 13-F filing with the SEC. The filing indicated that CIC’s largest position in gold stocks was a $4.6 million stake in Kinross Gold, a Canadian-based gold producer and the fifth largest component of the GDX. Shares of KGC were unable to sustain its early gains, however, as it traded lower by $0.22, or 1.3%, to $16.96.
Moving forward it remains unclear whether Friday’s bullish reversal in the gold price and the 5.4% advance in the GDX - its best day in three months - served as a reflex rally to correct short-term oversold conditions or marked the resumption of the sector’s longer-term uptrend. As earnings season progresses and reports are released from many of the world’s largest gold stocks - including Canadian-based Barrick Gold (ABX) and Goldcorp (GG) - market participants will get a much better idea if the 29% fall in the GDX from its December highs is the beginning of a new downtrend or merely a correction in the nine year gold bull market that began in 2001.
