As you might have noticed, all kinds of gold stocks have dropped in value considerably more than the actual spot price of the commodity. There is a lot of value developing in the gold sector of the stock market, and it’s time to be looking at new positions.
There’s no catalyst yet for gold prices to spike or begin a new upward trend, and accordingly, there’s no catalyst for gold stocks to accelerate just yet. We may see the spot price of gold jump if the Federal Reserve decides to enact further stimulus for theU.S. economy. Regardless, stock market valuations are becoming much more attractive, and I think it’s increasingly likely that spot gold will accelerate throughout 2013.
Kinross Gold Corporation (NYSE:KGC) illustrates perfectly the disproportionate performance of a gold stock versus the modest decline in the spot price of the commodity. Kinross has had a tough year on the stock market and was trading well over $15.00 a share this time last year.
Another example of a gold stock that’s had a tough time on the stock market recently is IAMGOLD Corporation (NYSE/IAG), which basically lost half its value since November of last year. Weaker prices for gold stocks are pretty much across the board—from large-caps to micro-caps. The stock market has been disproportionately hard on gold stocks this year, and that is why I’m saying that speculative investors should now be taking a closer look at the sector.
The most important attribute that a gold mining company can offer you is rising production. Institutional investors know that the spot price of gold can be volatile, but nobody expects the commodity to collapse or anything even close to that. Spot gold over $1,000 an ounce is total gravy for a gold miner. The vast majority of producers have cash costs around $500.00 an ounce. As an investor, all you really need to find are those companies on the stock market with solid expectations for rising production on a near-term basis and one year out. Despite all the cash that’s been thrown at the gold mining sector over the last few years, there actually are very few small gold companies that have this expectation. Just like anything else, extracting resources from the ground is a tough business.
The stock market is going to be in trouble if the Federal Reserve doesn’t take further action. It’s unfortunate that the stock market is making this bet, but that’s how it is. Everything, including gold and oil, is vulnerable if the Federal Reserve doesn’t do more to help the economy. Unless the economic data suddenly take off to the upside, the outcome rests with the Fed.