Author Archives: Scalper1

With gold prices exploding higher since January, will major gold mining stocks take on a similar shine for the rest of the year? After dwelling in the market’s cellar for years, the action among some of the largest companies in the world seems to be saying yes for now. Those who bought the SPDR Gold Trust ( GLD ) ETF, a widely used benchmark to trade the direction of gold futures prices, on Dec. 31 are now sitting on a 9% gain. Not bad, considering that the S&P 500 is down 6.3% since Jan. 1, and the Nasdaq composite is off 10%. On Thursday, spot gold prices finished at $1,156.03 per troy ounce, up nearly 9% since Jan. 1. Some gold mining stocks have even outstripped SPDR Gold Trust. Newmont Mining ( NEM ) is one of nine stocks in IBD’s Mining-Gold/Silver/Gems industry group that boasts a 90 RS Rating or higher and at least a $1 billion market cap. The Greenwood Village, Colo., firm has soared as much as 34% since its 17.99 close. Randgold ( GOLD ), which primarily mines in Mali and Cote d’Ivoire, is up 24% year to date. Through Wednesday, both stocks notch a superior 93 RS Rating out of a maximum 99. Even the beginning investor knows that higher gold prices boost the profits of mining plays. In reality, it’s not that simple. For starters, predicting the path of gold prices is a treacherous one. Gold bulls have been exclaiming for years that amid a growing U.S. debt mountain, ultra-low interest rates and economic uncertainties around the world, gold serves as a safe haven asset. Yet gold has been in a bear market since September 2011. As the monthly chart of GLD shows, the rally since January has not broken gold’s long-term downtrend. Keep in mind that even as gold prices and mining revenues go up, so too can costs. Floods, war and labor strikes can render mines useless for months, if not years. Also, a mining company’s profits can swing sharply based on how much they use pricing hedges for future deliveries. The mining industry’s profit margins have been poor in recent years. Looking at the nine stocks with an RS of 90 or higher, just four had a pretax margin of 10% or higher in 2014. Randgold is tops with 30.2%, followed by Agnico Eagle Mines ( AEM ) (13.7%) Barrick Gold ( ABX ) (11%) and Sibanye Gold ( SBGL ) (10.3%). Newmont scored a pretax margin of 8.2%, down sharply from its 2010 peak of 41.2%. Full-year sales dipped 5%, 15% and 13% in the past three years through 2014, respectively. In 2015, the Street sees sales up 6% to $7.75 billion. Image provided by Shutterstock .