I have no interest in the major gold producers (or minor ones for that matter), but I find it odd that companies like Barrick Gold (TSX: ABX) and Kinross (TSX: K) are hitting lows when they are so wildly profitable.
Kinross is down by about half, but they have geopolitical issues which can justify some of the decrease. However, Barrick is down 20% (which is uncharacteristic of the stock, which is one of the lowest volatility stocks out there) and they continue to rake in the cash – selling prices of $1,700/Oz and total costs of about $740/Oz from their last quarterly report. The market is probably trying to price a significant increase in cash costs over the medium term.
I continue to be leery about commodity-based firms at this time.
I’m assuming you don’t like commodities generally, but in your opinion, are bullion ETFs a better bet than the gold producers?
On paper you would think the gold producer stocks would be a better value than gold itself if gold prices stay steady. But price action on the stocks compared to the price of gold have exhibited considerable under-performance, probably due to cost concerns.
Even after looking over a bit of data, I don’t have a strong feeling and in such circumstances its usually best to find a better place for your money. One big negative of gold is the inverse correlation between interest rates and its price, and since interest rates have bottomed and all that the Fed and the ECB can do is QE, which has proven to be relatively ineffective, makes you wonder if the commodity price has peaked.
Recall in the 90’s silver was trading below marginal costs of extraction. I’m not saying gold will do the same, but who knows.