• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Which Gold Miners Have Largest Upside?

Since hitting $1,900 an ounce through the beginning of October, gold has declined nearly 11 percent. Over the same timeframe, the NYSE Arca Gold Miners Index lost almost 13 percent. That's a closer performance correlation than the roughly 3-to-1 gold equities to bullion ratio we've historically seen and could meanthe miners are finally closing the gap.

However, TD Securities Equity Research points out this interesting fact: Over a period of 18 months prior to hitting $1,900, gold rose 79 percent but TD's basket of gold equities only increased 57 percent. The firm says this performance gap "ranks as the worst relative performance of gold equities to gold since 2001." During the July through September period of 2008, TD Securities' universe of gold equities declined 46 percent, while gold bullion only lost 24 percent. In October through November of 2008, the same gold equities lost 37 percent; while gold decreased 22 percent.

What's behind today's record disparity?

Part of it may be due to the underperformance of the explorers and developers, which, TD says, "have been hit the hardest." The chart below shows gold miners by capitalization and their returns since April 2011. Explorers and developers have declined the most, losing 21 percent, small- and mid-cap producers have declined 6 percent and large producers lost 5 percent.

Explorers & Developers Hit the Hardest

Because of the dramatic price decline in these early-stage companies, investors have the opportunity to purchase explorers & developers (E&D), often referred to as juniors, at about half of the company's net asset value (NAV). In simplest terms, the NAV means assets minus liabilities. In fact, you can see from the chart that the current price-to-NAV level for E&D equities is sitting near record low levels...levels not seen since the financial crisis of 2008.

Exploration and Development Gold Companies Trading Near 2008 Levels

TD found that in seven of the past 10 rallies, gold equities beat gold--averaging a beta of 1.4 times. Looking over the next year or so, we believe the smaller gold miners are especially poised to outperform this time. As TD says, "on a rebound, we expect the best performing equities to be among the ranks of the explorers and developers."

To gold equity buyers like U.S. Global, this represents a tremendous buying opportunity.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results.

 

Back to homepage

Leave a comment

Leave a comment