GOLD STOCKS NEWS – Gold stocks rallied Thursday morning as the Market Vectors Gold Miners ETF (GDX) climbed $0.74, or 1.3%, to $60.70 per share. Gold stocks and the GDX were boosted by COMEX gold futures, which advanced $24.40 to $1,754.00 after the European Central Bank (ECB) unexpectedly cut its benchmark interest rate by 25 basis points to 1.25%. The S&P/TSX Global Gold Index, Canada’s leading gold stocks composite, advanced 0.7% alongside the GDX.
Despite today’s strength in gold stocks, the GDX remains lower by 1.5% on a year-to-date basis. Gold stocks as a group have significantly underperformed the yellow metal, which has surged 23.3% in 2011.
Several well-respected gold investors – including Eric Sprott and John Hathaway – have recently reiterated their bullish outlook on gold stocks. These long-time gold bulls have forecasted that gold stocks will soon begin to outperform the gold price as the bull market in the yellow metal continues in the months and years ahead.
The latest investor to echo this sentiment was David Einhorn, the hedge fund manager who gained notoriety for shorting Lehman Brothers in 2008. On a conference call earlier this week, Einhorn – founder of Greenlight Capital and a long-time gold bull himself – stated his case for investing in gold stocks.
“A substantial disconnect has developed between the price of gold and the mining companies,” Einhorn contended. “With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further. Since we believe gold will continue to rise, we expect gold stocks to do even better.”
In a regulatory filing for Greenlight Capital Re Ltd. – where Einhorn is Chairman – he stated that “Given the challenging macroeconomic environment, we intend, for the foreseeable future, to continue holding a significant position in gold and other macro hedges in the form of options on higher interest rates and foreign exchange rates, short positions in sovereign debt and sovereign credit-default swaps.”
Although Einhorn did not discuss specific gold stocks on the call, reports surfaced from several media outlets that Greenlight has acquired a considerable position in the GDX. Greenlight also holds a significant position in the SPRD Gold Trust (GLD), which acts as a proxy for the price of gold.
In morning trading, notable gold stocks moving higher included GDX components Barrick Gold (ABX), Agnico-Eagle Mines (AEM), and Newmont Mining (NEM). Shares of ABX, AEM, and NEM rose 1.0%, 1.5%, and 1.6%, respectively.
Canaco Strikes Again at Magambazi Gold Discovery
* 16.29 g/t gold over 4.0m at hole MGZD209.
* 10.33 g/t gold over 3.5m at hole MGZD271.
