Getting Ready for the Gold Move - A Look at the Gold Stocks

Now is the time that we're looking at the gold stocks for entry points when the dollar rally ends (which we believe will be sooner than most...).  We anticipate that 2010 will be a very good year for gold stocks, notably in the first half of the year as oil prices remain seasonally weak, the dollar wears out its rally, and gold begins moving up again.

In today's analysis, we're going to keep it simple by showing relative performance of select stocks over given periods of time. Note that no fundamentals are included in this analysis (You really, really need to look into the fundamentals for any gold company stock you are consider buying.  Caveat emptor).  We may own one or more of these stocks already, but certainly do not own them all.  This list was chosen based on some not-so-obvious reasons and does not represent an implied endorsement or recommendation for any or all of the stocks.

We're not going to draw conclusions for the reader today--that homework assignment is for you.  We simply want to paint a picture that you may not have seen when considering gold stocks in the past.  It's chart heavy from there on, so be prepared to sit down, think about what the charts are saying to you, and get ready to do some of your own homework.  You may want to consider purchasing the Mining Explained book, available in our bookstore at the bottom of the page to help with fundamental evaluation of any stocks you deem of interest.


This list is not, by any means, comprehensive.


We will present two charts for for each category of stocks we list.  The first chart is the "long term" chart.  Depending on when some of the stocks listed became available publicly, the duration for the long charts varies dramatically.  Please note the dates.


The second chart will be the same stocks since roughly the beginning of March, when the credit crisis ended and global stock markets (and gold prices) began recovering.


All charts are relative performance.  Many companies are repeated in this analysis for various reasons, notably if they're part of one index or the next.


In this collection of charts, the "control group" is the HUI index, which can be proxy purchased through the GDX ETF.  Keeping the HUI in the calculation means that all price measurements will be done relative to this index as a baseline.

Finally, note that this charting function we're using from stockcharts.com only allows the measurement of 10 ticker symbols at once.  Thus, when we analyze a given index, we must do it over multiple charts, for which we again need a control price (like the HUI) so that we are consistently measuring apples vs. apples.


First, let's look at the performance of the major gold mining companies relative to the S&P, the end of day gold performance, the end of day silver performance, the USDX performance, and the HUI.  First, note that gold stocks (as represented by the HUI) have outperformed the S&P consistently since 2001, which was, of course, the beginning of the gold bull market.  Gold stocks have also outperformed gold itself (which has outperformed the S&P) and silver.  Owning gold stocks is not a safe substitute for owning physical metal (which is insurance), but gold won't make you wealthier (you preserve your purchasing power only) while the right gold stocks will.

Now you can see the rationale for measuring all stocks relative to the HUI.  Since it has outperformed the S&P, it is one way of determining a stock's performance relative to an index which has dramatically outperformed the S&P...

From this first chart, you can see the major gold producers individually, Anglogold Ashanti, Gold Fields, Barrick, and Newmont have not performed as well as the entire index.  This is largely due to the smaller and mid sized gold producers in the HUI.  Point number one to remember--the smaller the company, the higher the risk and the higher the reward...

The next chart is the relative performance of the same stocks since the March bottom in the S&P.

Obviously, the dollar has taken a real beating in that time.  In general, oil prices and costs of production are down, and the HUI has not outperformed the S&P recently, even with a higher gold price (and, by proxy, more profitable gold for these miners with lower oil costs and higher product prices).  Note that none of the majors have outperformed the entire HUI index.


This is the primary reason we anticipate a very profitable 2010....


Here are the charts for some key large and intermediate producers, relative again to the S&P, the gold price, the silver price, the dollar index, and the HUI again.  Note that this chart is from 2003 forward, but is plenty representative of the long term gold bull market.

Some may consider Goldcorp to be a major, and though the company is working on it, we consider it to be "large."  Yamana has been the big winner for the last six years or so.

The same companies from March.

Most recently, Buenaventura has been a strong outperformer.  As a Brazilian company, much of that has probably been real currency appreciation vs. the dollar.


The next few charts show two sets of smaller producers over the long term and from March forward.  Note that we had to break these into two sets of charts because of the number of companies in the list.

Since 2003, Eldorado Gold has been he best performer by far.


Since March...

The second group, from 2007:

Second group, since March:

The HUI components, again broken into two sets of charts.  This time, we compare the individual stocks to the HUI alone (since the prior charts clearly show the HUI vs. the S&P outperformance in many different ways).

These are laid out in alphabetical order.  The first group, from 2003 forward (with the HUI now on the far left, in red):

Same group, since March:

The second half of the HUI index, since 2003:

Since March:

 From Jim Puplava's October filings, we bring 4 sets of the "Pup charts," both long term and since March:

"Pup charts" set two:

Set three:

 

Set 4--ok, maybe not really a set, but the last one of the lot...


An interesting mixed set, including some royalty companies, against the S&P, dollar, and HUI:

 

 

To be fair, here are some key silver players:

 

 

The Rob McEwen list.  Four sets!

 

Finally, there's a new gold mining juniors ETF on the market, the GDXJ.  To the extent possible, here is the relative performance of the stocks that make up that group.  Note that due to limitations in the stockcharts.com symbol list, several juniors from the Australian, London, and Hong Kong exchanges are not included in this list.  They are Kingsgate Consolidated, St. Barbara Ltd, Avoca Resources, Medusa Mining, Dominion Mining, Real Gold Mining, Avocet Mining, and Lingbao Gold Co.

Four sets again.

 

That's a lot of ways to slice and dice many of the gold juniors, but given the range of views, with a little studying the right ones seem to just jump out....