Gold Stocks (GDX) Dip, “Historically” Undervalued?

GOLD STOCKS NEWS – Gold stocks moved lower Tuesday despite stability in the gold price, as the Market Vectors Gold Miners ETF (GDX) dipped $0.16, or 0.3%, to $63.74 per share.  Gold stocks in Canada headed south as well, with the S&P/TSX Global Gold Index falling 0.3% to 432.11.

With its modest decline, the GDX underperformed the broader U.S. equity markets.  The Dow Jones Industrial Average (DJIA) climbed as much as 77.42 points to 11,138.54 but pared its gains as morning trading progressed.

Although news in the gold stocks sector was particularly light, several GDX components received an endorsement from yet another investment bank.  Yesterday, GMP Securities increased its long-term gold price forecast from $1,350 to $1,575 per ounce and in-turn raised its target price on a host of gold stocks.

In its report, the firm wrote that gold stocks “have massively lagged the metal over the past year, with bullion up approximately 46% on a 12 month basis versus a 24% rise in the GDX. We have started to see the stocks play catch-up over the past few weeks (GDX has outperformed gold by 12% since August 8th), but the gold shares are still trading at historic low P/E, P/CF, or P/NAV multiples.”

Among large-cap gold stocks, GMP’s top picks were Goldcorp (G.TSX, NYSE: GG) and Kinross (K.TSX, NYSE: KGC).  The firm has price targets on G.TSX and K.TSX of C$80.00 and c$26.00, respectively – well north of current prices.

In morning trading, G.TSX fell C$1.42, or 2.7%, to C$51.13 per share.  K.TSX dropped C$0.43, or 2.5%, to C$16.57 per share.

In the intermediate gold producers space, the firm’s top picks included Eldorado Gold (ELD.TSX, NYSE: EGO), Agnico-Eagle Mines (AEM.TSX, NYSE: AEM), and IAMGOLD (IMG.TSX, NYSE: IAG) – with price targets of C$26.50, C$87.00, and C$30.00, respectively.

On Tuesday, each of these three gold stocks bucked the trend of the GDX.  ELD.TSX inched higher by C$0.09, or 0.4%, to C$20.42 per share, AEM.TSX advanced C$0.17, or 0.3%, to C$69.30 per share, and IMG.TSX rose C$0.04, or 0.2%, to C$21.75 per share.