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Gold Equities Are Oversold - TD Newcrest

by: FP Trading Desk September 05, 2008 | about stocks: AUY / GG    

FP Trading Desk

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While gold prices have had a tough time lately, they continue to dramatically outperform the gold equities. The stocks have been in a dreadful tailspin since July, and are showing almost no signs of life.

Part of this is nothing new — the equities have almost always underperformed the gold price in recent years. But as TD Newcrest analysts Steven Green, Greg Barnes and Daniel Earle point out, they now trade at levels not seen since August 2007, when the price of gold was in the mid-$600s per ounce.

"Effectively, the entire late 2007/early 2008 rally in gold stocks has been erased," the analysts wrote in a note to clients. They attributed this to a few logical factors: the recent correction in prices, rising operating costs, and lowered production guidance from several of the large-cap companies.

Their view is that the equities are currently factoring in gold prices of between $600 and $700 an ounce. Given that gold currently trades above $800 an ounce, they figure they are oversold.

"While it is difficult to predict the short-term direction of the gold price in the context of this market, for gold exposure we would recommend owning large-cap gold equities with low costs and production growth," they wrote. They singled out Goldcorp Inc. (GG) and Yamana Gold Inc. (AUY) as top picks.

Prices shown in US$ unless otherwise indicated.

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This article has 8 comments:

  •  
    Sep 06 04:41 AM
    article short and sweet but true. Suggest reading "Gold Futures Dirty Secret". glad you supplied the link. Many more articles discussing the same crap that the so called "regulators" are doing with silver can be found under the blog site "Silver Bear Cafe". Banks getting away with murder and the government turns a blind eye. So much so it only proves once again the Fed has no clothes.
    Reply
  •  
    Sep 06 06:10 AM
    If anyone is in doubt about Yamana, the last time Cramer recommended Yamana, it was at 17. He now says sell at 9. If you listened to him you would have lost over 50% of your money. Exactly folks, buy buy buy!!!
    BOOOYAAAA.
    Thanks Cramer, I now invest opposite you. I will now buy AUY and have NO worries about it.

    He also recommened Sirius at 3.2 and to sell at 1.28. If you listened to Cramer you would have lost over 60 percent of your money. As you see, he recommends a stock at its height, and says sell at its low. Not every stock, just the ones he doesnt want you in.

    Thanks Cramer, but if you sell gold in September, then you dont deserve to be investing in gold, pick something else if you dont realize this is the first month of the major yearly rally starting point.
    Reply
  •  
    Sep 06 08:14 AM
    relmor is right. You don't hear the big pundits like Cramer acknowledge the seasonality of gold. In fact the media makes it sound like gold follows the seasonality of oil which peaks in the summer and bottoms in the winter. Can you imagine buying gold in January and selling in June every year? Hahahahaha.
    Reply
  •  
    Sep 06 10:15 AM
    BUYING STOCKS ON CRAMER'S RECOMMENDATION ALONE IS FINANCIAL SUICIDE.IF YOU BUY GOLD OR COMPANIES THAT MINE IT I BELIEVE YOU WILL ALWAYS COME OUT AHEAD IF YOU DO YOUR OWN RESEARCH.THE ARTICLE ABOVE IS WELL TAKEN.
    Reply
  •  
    Sep 06 10:33 AM
    Good article. Cramer is not a good person to listen to. Though he's smart, his picks aren't good and he's capricious.

    Gold stocks are undervalued and will pick up in October/November.
    Reply
  •  
    Sep 06 10:48 AM
    Relmer, you are sooooooo right. cramer was saying to buy auy , it was $16.00 , so i bought and comm. ran it up to 17.00. MONTHS later, a caller asked about auy. he said it was a good buy, but buy it at $10 to $12.00. i sold it this past week at a bout a 45% loss. dumb me, i will never trust cramer. i just get my answers from the callers. "he knows nothing"
    Reply
  •  
    Sep 06 11:19 AM
    The miners are not getting loan availability from the banks even though M3 is growing at a 16% annual rate. The Fed is "pushing on a string."
    Reply
  •  
    Sep 06 01:11 PM
    Yes, some of the miners aren't getting loans--some are funded. It's tough. Have a look at which are showing at the private Denver Gold Forum. That's interesting. The companies showing will be good bets IMHO. Look for companies with proven reserves also.
    Reply
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