GOLD STOCKS NEWS – Gold stocks advanced Tuesday morning as the Market Vectors Gold Miners ETF (GDX) climbed $0.36, or 0.6%, to $56.56 per share. Today’s strength in gold stocks and the GDX followed yesterday’s 1.5% decline as widespread selling engulfed Wall Street. A rebound in COMEX gold futures – by $20.50 to $1,699.10 per ounce – helped fuel the rally in gold stocks. In Canada, the S&P/TSX Global Gold Index – the nation’s leading gold stocks composite – rose 0.8% alongside the GDX.
Notable gold stocks moving higher on Tuesday included GDX components AngloGold Ashanti (AU), Eldorado Gold (EGO), and Newmont Mining (NEM). AU rose by 0.7% to $44.35 per share, EGO by 1.0% to $16.94 per share, and NEM by 0.4% to $65.58 per share.
Despite this morning’s rebound in gold stocks, the GDX has come under heavy selling pressure in recent weeks. Since November 8th, the gold stocks ETF has tumbled 11.2% and is now lower by 8.3% on a year-to-date basis. Meanwhile, the yellow metal remains higher by 19.9% in 2011 and is on pace for its 11th consecutive annual advance.
The underperformance of gold stocks relative to the price of gold has left many investors quite disappointed in the sector. Nonetheless, the chorus of fund managers and market pundits turning bullish on gold stocks has continued to increase in recent weeks. One noted investor in this camp is Bill Fleckenstein, President of Fleckenstein Capital and a long-time gold bull. In his latest weekly column for MSN Money, entitled “In scary market, miners show mettle,” Fleckenstein reiterated his particularly bullish outlook on the gold stocks sector.
“One of the reasons I own the big miners that I do…is because last year I began to see an enormous buildup of cash on their balance sheets — and the potential for that to escalate,” Fleckenstein wrote. “I thought that maybe that would make people bullish, but it really didn’t because something else was holding folks back. That something was the fact that most people expected the price of gold in the future to be much lower than it is today.”
“Analysts who have held their future price assumptions for gold prices in the $900 to $1,000 range have just started to bump them up,” Fleckenstein added. “That can have a dramatic impact. In an Aug. 22 report, the gold stock analyst at Citicorp raised his long-term gold price assumption to $1,050 from $950 and over the next four years to an average of $1,437.50 from $1,156. As a consequence, he upped his target price for Newmont from $55 to $80 per share. That same report contained a table showing that with a long-term gold price assumption of $1,850, his target for Newmont would be $200.”
Fleckenstein noted that he currently holds a position in Newmont Mining (NEM), two other large-cap gold stocks and GDX components – Goldcorp (GG) and Yamana Gold (AUY) – and the yellow metal itself.
Two recent acquisitions of gold miners by Chinese companies – a China National Gold Group’s purchase of a miner in Central Asia and Shandong Gold Group’s bid for Jaguar Mining (JAG) – is another bullish factor for gold stocks, according to Fleckenstein. “A couple of proposed acquisitions in a short space of time does not guarantee that a trend is under way, but it does appear that, at the margin, China is becoming more aggressive about owning a bigger share of the world’s gold production,” he contended. “This is something it ought to do, as I have stated many times, and if it makes a few more acquisitions, that could unleash a tremendous frenzy in miners of all stripes.”
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