Gold and silver shares rallied alongside precious metals on Tuesday as the broader financial markets rebounded from yesterday’s losses.
The Philadelphia Gold & Silver Index (XAU) surged as much as 3.8% to 223.55, while gold futures rose 1.8% to $1,810.30 and silver climbed 2.5% to $40.14 per ounce. Notable advancers included Goldcorp (GG) and Newmont Mining (NEM), which jumped 4.5% and 5.8%, respectively.
While the Market Vectors Gold Miners ETF (GDX) and AMEX Gold Bugs Index (HUI) – two of the other key gold indices – have recently reached new all-time highs alongside the gold price, the XAU has yet to do so. The XAU reached its record level of 229.19 on December 7, 2010 – when gold was trading near $1400, and silver at $30 per ounce. Furthermore, the XAU remains lower by 1.3% year-to-date.
A significant reason for the XAU’s poor performance is the fact that Freeport-McMoRan Copper & Gold (FCX) is the XAU’s largest component. Shares of FCX have tumbled 32.4% year-to-date as the price of copper has fallen from near $4.40 in January to its current level near $3.75 per pound.
One can also make the case that Freeport does not even belong in the XAU because it is largely a copper company with a relatively small gold business. FCX is not included in the GDX and HUI, likely because it derives only a small percentage of its revenue and profit from gold production.
While the HUI contains many of the same large-cap gold companies as the XAU and is higher by 9.8% in 2011, it has also lagged the yellow metal’s 27.4% year-to-date gain. Given the sector’s underperformance, many investors have continued to assert that gold stocks are undervalued relative to the gold price. The latest investor to do so was Evy Hambro – manager of BlackRock’s Gold & General fund – one of the world’s largest gold mutual funds.
In an interview with the Financial Times, Hambro stated that the sector’s underperformance “is something that everybody is thinking about at the moment. A lot of our clients are switching out of the gold ETF [exchange traded fund] into gold equities and gold equity funds to take advantage of the opportunity.”
“We’re confident the gap will close,” Hambro asserted. ”It has always closed in the past. This is an abnormally long one and an abnormally large one. But we’re very comfortable that things are going to close up.”
Hambro did not discuss specific gold stocks, but did note that many investors see the gold price reaching $2,000 per ounce in the near future.
Premier Gold Added to S&P/TSX Composite Index
- Premier recently appointed Paul Andre Huet as Chief Operating Officer, where he will lead the advancement of the Company’s key properties in Ontario, Canada and in Nevada.
- Ongoing drilling at Premier’s Saddle Deposit in Nevada continues to intersect significant intervals of mineralized breccia (assays pending) and confirm the Company’s belief that Saddle represents one of the most prospective undeveloped high-grade gold deposits in North America.
- In August 2011, Premier completed its acquisition of Goldstone Resources, which will consolidate 100% ownership of the Hardrock Project and provide Premier with prime geological structures in the Geraldton-Beardmore Greenstone belt in Canada.
