Recent Gold Rally
Over the past month, as shown by the chart below of the largest physical gold ETF, SPDR Gold Trust ETF (GLD), gold prices have moved sharply higher. The move has come primarily on hopes of new stimulus measures from central banks around the world.
Click to enlarge
Gold Miners Rally
In response to the rally in gold itself, as shown by the chart below, most of the major gold mining stocks such as Barrick Gold Corporation (ABX), Newmont Mining Corporation (NEM), and Goldcorp Inc. (GG) have moved sharply higher.
Gold Fields, AngloGold Ashanti, and Harmony Gold
During the same time when other gold mining stocks moved sharply higher, Gold Fields, AngloGold Ashanti, and Harmony Gold, as shown by the chart below, moved lower.
Simply put, the price action says that something is very wrong for Gold Fields, AngloGold Ashanti, and Harmony Gold.
In my opinion, the primary reason for the decline in Gold Fields, AngloGold Ashanti, and Harmony Gold has to do with the lawsuits that these companies are currently facing. It is too early to know what the final outcome of these lawsuits will be, but the uncertainty is likely to continue for some time. The lawsuits have been a more important driver for these stocks than the rally in gold prices.
For the most part, when investors consider buying gold miners it is because they are looking for a leveraged play on gold itself. For a variety of reasons, this trade has not worked well over the long term. However, as previously discussed in the article, of late, gold miners have proved to be a leveraged play on gold itself. While I remain a long-term skeptic that the gold miners will continue to outperform gold itself, I am willing to concede that the trade is working right now.
That being said, Harmony Gold, Gold Fields, and AngloGold Ashanti should be avoided because they are not pure gold plays right now. Instead, Harmony Gold, Gold Fields, and AngloGold Ashanti are trading on the ramifications of the lawsuit.
For investors who claim to have a better understanding than the market of how these lawsuits will play out, then taking a position in Harmony Gold, Gold Fields, or AngloGold Ashanti is advisable. However, for the rest of us, who buy gold miners as a play on gold prices, I would avoid Harmony Gold, Gold Fields, and AngloGold Ashanti until the dust settles.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.