Are Gold Miners Getting Well? (ABX, GG, NEM, AU)

In the past month, gold mining stocks have hit new 52-week lows. On October 27th, Barrick Gold Corporation (NYSE:ABX) bottomed out at $17.27, Goldcorp (NYSE:GG) hit $13.84 on the same day, and Newmont Mining (NYSE:NEM) fell to $21.17. AngloGold Ashanti (NYSE:AU) waited a month to touch a low of $13.37 on November 20th.

Then, on November 21, every one of these companies rose at least 30%.Was it the announcement of Tim Geithner as President-elect Obama’schoice as Treasury Secretary? That might be as good an explanation asany, but the reasons were probably a bit more involved.

While Geithner’s appointment lifted spirits (and share prices) almostacross the board, gold could be rising because there’s still so muchthat is not known about the crummy assets that the federal governmentis trying to take of the balance sheets of the big banks. It seems thatevery time Henry Paulson announces a new liquidity program it raisesnew questions about where the bottom of the market really is.

In order to find that bottom, the US government is printing Treasurybills at a phenomenal rate. When (if) the bottom is discovered, caninflation be far behind? And if inflation and recession are just aroundthe corner, what’s better to hold onto than gold? 

That may not be what’s causing gold stocks to rise, but it’s a possiblecontributor. Another contributing factor is the relative scarcity ofthe physical gold right now. Australia’s Perth Mint has suspendedphysical deliveries of gold until January. The Australian quotes adealer who pointed out that "all around the world there has been aheavy run on physical gold and there is a shortage of supply."  The USmint has also interrupted gold mint coin sales.

It remains to be seen if the gold miners can meet the demand. Theirextraction costs have been rising and production has fallen or stayedlevel at best. The sharp rise in share prices in the past few dayscould be just wishful thinking on the part of investors, unless theminers can get better at what they do.

Barrick (NYSE:ABX) is up roughly 8% since last Friday, Goldcorp(NYSE:GG) is up 10% from last Friday, Newmont (NYSE:NEM) is up almost15% since last Friday, and AngloGold Ashanti (NYSE:AU) is up 7% sincelast Friday.

Paul Ausick
November 28, 2008