Gold Stocks (GDX) Eye Best Month Since February

GOLD STOCKS NEWS – Gold stocks held steady Tuesday as the Market Vectors Gold Mines ETF (GDX) rose $0.14 to $60.42 per share.  Gold stocks and the GDX inched higher as gold bullion stabilized near $1,613 per ounce.  Canada’s leading gold stocks composite, the S&P/TSX Global Gold Index, advanced 0.2% alongside the GDX.

While gold stocks held firm this morning alongside the yellow metal, the GDX has surged higher this month on the back of gold prices reaching new record highs above $1,600 per ounce.  In July, the GDX is up 10.0%, putting it on pace for its best month since an 11.0% rally in February of this year.

However, recent strength in gold stocks followed several months of substantial weakness, such that the GDX remains lower by 2.6% year-to-date.  Commenting on the gold stocks sector, J.P. Morgan analyst John Bridges wrote in a report to clients that “Precious metals equities became oversold relative to the metal but now seem back to trend.  We believe the equities should follow the bullion price,” which the firm forecasted will average $1,800 per ounce in the fourth quarter of this year.

Gold stocks “can lag gold when prices are high or the market is de-risking but it’s nonsensical for the two to diverge for long periods,” Bridges continued.  “Already the equities have recovered most of the ground lost in Q2.”

Going forward, J.P. Morgan noted that it expects gold stocks “to perform, but they may lag the metal.  It’s rational for investors to be wary about factoring into equity valuations a gold price that is perceived to be ‘toppy.’  This has resulted in our gold equities discounting about a $1,175/oz gold price. We see the extreme weakness in Q2 as an anomaly.”

In light of its bullish outlook on gold stocks, J.P. Morgan highlighted Goldcorp (GG), Kinross Gold (KGC), and Newmont Mining (NEM) as its top picks among large-cap names.  The firm has an Overweight rating on all three gold stocks, price targets of $68 on Goldcorp, $25 on Kinross, and $89 on Newmont.

In morning trading, GG fell 0.1% to $53.50, KGC slid 0.5% to $17.30, while NEM climbed 0.5% to $58.68 per share.  Other notable gold stocks on the move included GDX components Barrick Gold (ABX) and Agnico-Eagle Mines (AEM), which advanced 0.4% and 0.7%, respectively.