After a recent correction it appears gold's Bull Run continues fueled by recent news that China's economy may not be headed for a hard landing. Gold rose to slightly above $1900 in the last quarter only to come crashing back down to just below $1600. Now it has broken through its 200 day moving average and I posit will hit at least $2000 in 2012. This is the eleventh 10% correction for gold since 2003. Gold has always bounced back and soared higher each time. Gold has been up 10 out of the last 10 years.
The stocks in question are: Eldorado Gold Corp Ltd (NYSE:EGO), SPDR Gold Trust (NYSEARCA:GLD), Randgold Resources Limited (NASDAQ:GOLD), Market Vectors Gold Miners ETF (NYSEARCA:GDX), Market Vectors Junior Gold Mine (NYSEARCA:GDXJ) and Novagold Resources Inc (NYSEMKT:NG).
These stocks have major upside potential and are highly correlated to gold. Please review the following gold market backdrop, major oil and gas macro catalysts followed by company specific catalysts and current charts followed by detailed tables regarding each company's fundamental statistics and analysts recommendations.
Gold Market Backdrop
Gold rose one percent on early Tuesday, reinvigorated by China's announcement of better than expected growth in the fourth quarter of last year. China grew at an 8.9% pace besting a Reuters forecast of economists polled. Please review the following excerpt:
The world's second-largest economy grew 8.9 percent from a year earlier in the fourth quarter, beating a forecast of 8.7 percent by economists polled by Reuters, although it was the slowest growth in 2-1/2 years.
"The data showed that China's economic growth was not as bad as feared and there was too much panic in the market," said Bonnie Liu, an analyst at Macquarie in Shanghai.
The data, though not weak enough to trigger aggressive monetary easing, is expected to justify a gentle easing of monetary policy by Beijing, which is likely to boost prices of assets, including gold.
Spot gold gained 0.9 percent to $1,658.19 an ounce by 0509 GMT, heading for a second consecutive session of gains.
U.S. gold stood at $1,658.80, up 1.7 percent from Friday's settlement, after a U.S. public holiday on Monday.
Riskier assets, such as equities and base metals, firmed on China's economic data, which offered a glimpse of hope amid global growth prospects clouded by the eurozone debt crisis.
Macro Gold Bull Case Drivers
As fiat currencies continue to devalue, gold will march higher in value. No fiat currency in history has survived to date. It's a race to the bottom for the world's central banks as they continue to one up each other's quantitative easing efforts. Recently many central banks of emerging markets lowered their interest rates, consequently lowering the cost of borrowing. In most cases inflation will outstrip the yield on savings, creating negative real interest rates. Thus, investors will take flight to precious metals and protect their wealth from devaluation.
Gold is incredibly under-owned by institutions relative to historic levels and relative to differing asset classes. What's more, the long-term trend of the U.S. dollar is lower. Conversely, the long term trend for gold is up. As the dollar's value continues to dwindle and worldwide economies recover, investor focus will swing from deflation to inflation which bodes well for gold.
The gold miners are a buying opportunity. The deviation between mining stocks and gold is huge by historical standards. In due course, this trend will reverse and the gap will return to normal levels. Miners burnt by recent earnings misses have curtailed their growth forecasts and earnings outlooks which will accelerate the pace of rebound as they exceed their lowered expectations.
As the middle classes of China and India emerge, their demand for gold will rise exponentially. Special occasion gifts are mostly conveyed in gold in these countries. India is the largest importer of gold peaking at nearly 850 tons per year.
Catalysts, Charts, Fundamentals, Analyst Recommendations
Eldorado recently released outstanding 2011 operating results and it's 2012 operating guidance. Additionally, dividend payments were increased by 50%.
Paul N. Wright, President and Chief Executive Officer of Eldorado Gold Corporation announced:
All the mining operations of the Company performed strongly through the fourth quarter, contributing to the total gold production of 168,933 ounces and iron ore production of 150,309 tonnes. The year-end 2011 production of 659,134 ounces of gold at a cash cost of $405 compares favorably with our mid-year guidance of 650,000 ounces at $400 per ounce.
Charts and tables provided by Finviz.com
The GLD seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
Randgold Resources recently reported a series of setbacks at its Tongon mine in Côte d'Ivoire which will have a negative impact on its production for the fourth quarter of this year. Against this background, Randgold believes a revision of its 2011 production guidance is warranted. It now expects group production for the year to drop to a range from 690 000 to 700 000 ounces, which still represents a significant increase over 2010.
The GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts of companies involved in the gold mining industry. It is non-diversified.
The GDXJ seeks to replicate, net of expenses, the Market Vectors Junior Gold Miners index. The fund normally invests at least 80% of total assets in securities that comprise the index. The index tracks the overall performance of foreign and domestic publicly traded companies of small- and medium-capitalization that are involved primarily in the mining for gold and/or silver. The fund is non-diversified.
NovaGold recently announced significant new drill results from additional exploration drilling on the Bornite target located on the recently consolidated 180,000-hectare Upper Kobuk Mineral Project located in the Ambler mining district of Northwest Alaska. These results complement major intersections achieved in the initial phase of drilling at Bornite.
Highlights of this phase of the drilling campaign are summarized below:
- RC11-194 intersected two mineralized intervals totaling 110.6 meters averaging 2.6% copper including 11.8 meters grading 7.5% copper;
- RC11-185 intersected 18.1 meters grading 3.8% copper. Overall the hole intersected two mineralized intervals totaling 121.3 meters averaging 1.4% copper;
- RC11-186 intersected three mineralized intervals totaling 153.1 meters averaging 1.2% copper including 67.8 meters grading 1.4% copper and 59.2 meters of 1.0% copper; and
- Receipt of assay over-limits on Hole RC11-187 results in revised mineralization intervals of 178 meters grading 4.0% copper and a high-grade intersection of 34.7 meters of 12.0% copper.
In October 2008 gold plummeted 18% and subsequently rebounded 23% over the next two months. This is the eleventh 10% correction for gold since 2003. Gold has always bounced back and soared higher each time. With gold being up 10 out of the last 10 years and central banks caught in a game of "catch-as-catch-can" in a race to devalue their currencies, inflation will soon become the issue of the day spurring gold higher benefiting these gold related equities. I would buy a basket of gold stocks, layer in to any positions and set tight stop loss orders to reduce risk.
Nonetheless, this is only the first step in finding winners for your portfolio. Don't take my word for it, use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security.