Gold's Record High: Why Haven't Gold Miners Followed Suit?
Portfolio Pulse from Piero Cingari
Gold has reached a record high of over $2,146 per ounce, yet gold mining stocks have not seen similar gains, with the VanEck Gold Miners ETF (GDX) 50% below its 2011 peak. Rising production costs, stock dilution, local opposition, and a fragmented industry are cited as reasons for the underperformance. Oliver Groß points to increased costs in energy, labor, and operations, while Ima Casanova of VanEck sees gold stocks as undervalued and poised for a re-evaluation.
December 04, 2023 | 6:11 pm
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NEUTRAL IMPACT
The VanEck Gold Miners ETF (GDX) is significantly underperforming compared to gold prices, largely due to the challenges faced by the mining sector including rising costs and industry fragmentation.
GDX directly reflects the performance of the gold mining sector, which is currently facing multiple challenges that are impacting profitability. However, the potential undervaluation mentioned by Casanova could indicate a neutral short-term impact as the market digests this information.
CONFIDENCE 80
IMPORTANCE 75
RELEVANCE 90
NEGATIVE IMPACT
Barrick Gold Corp. (GOLD) has been involved in costly acquisitions, such as the $7.1 billion purchase of Equinox Minerals, contributing to stock dilution and underperformance relative to gold prices.
GOLD's performance is likely to be negatively impacted in the short term due to the historical context of costly acquisitions and the resulting stock dilution, despite the current high gold prices.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 80
NEGATIVE IMPACT
Kinross Gold Corp. (KGC) has also engaged in expensive acquisitions, such as the purchase of Red Back Mining for an equal sum, which has led to stock dilution and lagging performance.
KGC's short-term performance may continue to be affected negatively due to past acquisition strategies that have resulted in stock dilution, despite the increase in gold prices.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 80
NEGATIVE IMPACT
Newmont Corp. (NEM) has faced similar issues with its $2.3 billion acquisition of Fronteer Gold, contributing to stock dilution and a lack of correlation with gold's price movements.
NEM's stock may be negatively impacted in the short term due to its historical acquisition-related dilution, which has not been offset by the recent rise in gold prices.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 80