Gold And Gold-Related Stocks Back In The Limelight?

Includes: ABX, GFI, GG, NEM
by: Chandrasekhar Rajagopalan

Gold seems to be back in the limelight with investors preferring the yellow metal during the third quarter. As a result, the stocks of Barrick Gold (NYSE:ABX), Goldcorp (NYSE:GG) and Gold Fields Ltd. (NYSE:GFI) have seen upside in the third quarter. This is in contrast to the stocks' first two quarters performance in the bourses. The performance of gold and gold-related stocks is giving hopes of another Bull Run year.

The yellow metal did well to advance 11.1 percent to $1776 per ounce in the third quarter from $1598.5 per ounce at the end of the second quarter. In comparison, gold dropped 3.9 percent in the second quarter. Before that, the precious metal advanced 8.6 percent in the first quarter to $1662.5 per ounce from the fourth quarter of 2011. For the first three quarters, gold has delivered a solid return of 16 percent.

The renewed interest for the yellow metal has percolated into gold-related stocks in the third quarter, but that was not enough to recoup the losses suffered in the first half of 2012. Goldcorp recorded a significant gain of 22.8 percent, while Barrick Gold edged up by 10.4 percent. Gold Fields settled with a slender 0.3 percent gain. Newmont Mining (NYSE:NEM) also recorded a 15.5 percent gain in the third quarter, reversing the previous two quarter's trend.

The third quarter performance of GG and ABX is more or less in tandem with gold's growth rate. However, the stocks failed to match gold's performance for the year-to-date period. Gold Fields, Barrick Gold and Newmont Mining have delivered a negative return of 15.7 percent, 8.4 percent and 6.7 percent respectively. Only Goldcorp bucked the trend with a modest gain of 3.6 percent.

Interestingly, the stock markets also ended in the positive territory in the third quarter. While the S&P 500 advanced 5.8 percent, the Dow Jones Industrial Averages or DJIA edged up 4.3 percent. The Nasdaq also gained 6.2 percent in the third quarter. For the year-to-date too, S&P 500, DJIA and Nasdaq recorded a gain of 14.6 percent, 10.0 percent and 19.6 percent respectively.


Percentage of Growth or Degrowth













































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The above table indicates that investing in gold offered better returns than in investing in companies producing gold. Similarly, the stock market indices have also performed well for the nine-month period. This raises a question whether investing in gold or gold related stocks will offer better returns in the coming quarters.

Looking at the demand for gold, second quarter accounted for 990 tons compared to 1100.9 tons in the first quarter. The 2011 third quarter witnessed the strongest demand of 1,219.6, tons, a data from world gold council indicates. The slow down in demand was witnessed in the fourth quarter of last year itself when it was 1,145.4 tons.

However, the current bull run of gold is strengthened by QE3 and the continued uncertainty over the economic conditions among the developed economies. The stock markets have already witnessed a stronger growth and any diversion of money could only go to the gold market. Citigroup has reportedly raised its year-end average price for gold.

Meanwhile, Barrick Gold Chief Executive Office Jamie Sokalsy has reportedly suggested that gold could surpass $2000 per ounce in 2013 as a result of monetary stimulus, a change in central banks' sentiment towards gold and the continued global economic ambiguity.

While gold looks to be a safe bet for investment, gold related stocks are a clear under-performer for the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.