Gold miner ETFs are the proverbial falling knife and a lot of fingers have been lopped off the past year. Miner stocks have fallen harder than gold prices during the recent swoon, but the hated sector may finally get its chance to shine.
Gold miners are trading near multi-year lows and and companies are starting to act more shareholder friendly, reports Andrew Bary for Barron’s.
“In my career, I’ve rarely seen a group less well-liked than the gold miners,” David Steinberg of DLS Capital said in the article, pointing out that the widely followed Philadelphia Stock Exchange Gold & Silver Sector index (XAU) trades where it was in the late 1980s. “Relative to history, these stocks are extraordinarily undervalued, but I don’t know when sentiment will turn.”
For instance, the Market Vectors Gold Miners ETF (GDX) shows an underlying price-to-earnings ratio of 11 and the Market Vectors Junior Gold Miners ETF (GDXJ) has a 9 price-to-earnings ratio. [Gold Rout Pushes Gold Miner ETF to Lowest Since January 2009]
The miner funds have been underperforming gold, with GDX down 38.4% year-to-date and GDXJ 39.3% so far this year. In comparison, the SPDR Gold Shares (GLD) has declined 16.4% this year. [Gold Slump Weighs Heavily on Precious Metal Miner ETFs]
With gold prices above $1,400 an ounce, the mining industry is generating a profit. For instance, Barrick Gold (ABX) estimates an “all-in sustaining costs” of about $1,050 and Newmont Mining (NEM) calculates about $1,150 for 2013.
Dough Groh of Tocqueville Gold fund, though, believes that the true all-in cost is around $1,350 an ounce due to new mine development costs. Nevertheless, Groh remains optimistic about “management turnover, better capital allocation and reduced cost pressures.”
For more information on gold producers, visit our gold miners category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.