Gold Stock Pressure, With Or Without Gold Prices (EGO, RGLD, IAG, GSS, GLD, GDX, ABX)

We covered last weekend about how the $1,000.00 gold was at an inflection point and looking as though it was either poised to pop to $1,200.00 on the speculation of fear or that it was likely to fall back towards $800.00 as reality prevails as the world didn’t flatten and proceed to roll off the edge into the abyss.  What is interesting is that even as gold was hitting highs, many of the miners, particularly the speculative miners, were well under highs and have seen even worse pressure this week on gold’s pullback.

When Eldorado Gold Corporation (AMEX:EGO) withdrew its planned offering of common stock on Tuesday, its shares and those of competitor miners fell sharply. Eldorado opened the day at $9.34 and closed it at $8.19, off more than 12%. Royal Gold Corporation (NASDAQ:RGLD) fell from $44.85 to $41.22, down about 8%; IAMGold dropped from $8.74 to close at $7.66, down more than 12%; and Gold Star Resources, Ltd. (NYSE:GSS) dropped from $1.40 to $1.16, off about 17%.

Two gold ETFs, SPDR Gold Shares (NYSE:GLD) and Market Vectors Gold Miners (NYSE:GDX) both fell sharply as well, but both have recovered some as of yesterday’s close. Gold Shares invests in bullion and Gold Miners invests in mining stocks. Gold Shares is down about 5% as of yesterday’s close, while Gold Miners is down about 9%.

Miners, especially the smaller ones like Eldorado and Royal Gold, will continue to struggle with liquidity as the economy remains sour. Mining ETFs like Market Vectors Gold Miners will follow along because the large gold miners like Barrick Gold Corporation (NYSE:ABX) included in the fund are also struggling to lower costs and increase production.

Gold bullion investors, like SPDR Gold Shares, will follow the economic news. Bullion fell sharply yesterday to close just above $940/ounce, down from about $945/ounce the previous day. European and Asian markets are lower today, so gold has recovered a bit to about $958/ounce. When inflation fears rise, bullion rises sharply, as it did last week, when it closed above $1,000/ounce.

Paul Ausick
February 27, 2009