Customer Service 1 (888) 261-2693
Advanced Search

Where the Values Are in the Gold Sector

By Matt Badiali, editor, S&A Resource Report
Wednesday, January 26, 2011

The big gold stock rally that started in August is finally taking a break...
 
Last summer, the benchmark gold stock index, the HUI, was locked in long sideways trading pattern in the 450 area. Then, gold made a big $200-per-ounce move that lasted till December. This move helped hand the HUI a 28% gain in just a few months. Many smaller gold stocks climbed more than 100% during this move.
 
But as you can see, this move has turned from up to down. Take a look at the past 18 months of trading here:
 
 
The HUI has lost 16% since December 6, thanks to the weakness in gold... and has reached its lowest low in three months.
 
The long-term gold stock bull has to ask himself if this is a buying opportunity. Let's see what the values say here...
 
One of the first essays I wrote in 2011 discussed how cheap big gold miners looked based on a 2011 earnings estimate, using $1,400 gold. At that price, the big gold miners were going to make a lot of money... and they were selling super cheap.
 
But what happens if gold heads back to $1,200 and stays there? Are these stock worth owning?
 
Gold Miner
PE Ratio at
$1,400 per oz.
PE Ratio at
$1,200 per oz.
Goldcorp
10.8
13.6
Newmont Mining
13.5
29.7
Barrick Gold
11.6
19.1
 
Well, if you lower the gold price, they all get more expensive. But take a look at Goldcorp. Even if gold falls another $150 per ounce, it's still a great deal.
 
The short-term trend is still down, so I don't suggest buying these stocks just yet. But I'm a long-term bull on gold. Once the trend stabilizes, I'll be looking for bargains like Goldcorp.
 
Good investing,
 
Matt Badiali




Further Reading:

"I compared estimated 2010 earnings with what they'll make in 2011 if gold stays at $1,400 per ounce and costs are similar to 2008," Matt wrote. "As you can see, there is one clear winner." Learn more here: Get Ready for Big Gold Mining Profits in 2011.
 
There are too many junior miners on the Toronto Stock Exchange's Venture Index to predict which ones will boom and which will bust. But Matt's got three rules that will weed out the losers. Read more here: One Simple Strategy for 3,000% Gains.

In The Daily Crux
Market Notes
Wal-Mart breaks out to two-year high.
 
Gold uptrend under pressure... prices return to early-October levels.
 
Glass maker Corning soars to fresh 52-week high... earnings show big demand for glass in smartphones and tablets.
 
Baltic Dry Index sinking fast... Excel Maritime Carriers plummets to 18-month low.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1291.18 +0.0% +17.7%
Oil (USO) 36.27 -1.8% -1.5%
Gold (GLD) 130.10 -0.2% +21.1%
Silver (SLV) 26.23 -0.5% +55.9%
U.S. Dollar 78.00 -0.2% -0.2%
Euro 1.37 +0.3% -3.2%
Volatility (^VIX) 17.59 -0.3% -30.8%
Gold Stocks (^HUI) 497.99 -0.5% +25.1%
10-Year Yield 3.32 -2.6% -8.5%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 129.17 +0.1% +17.7%
Canada (EWC) 30.72 -0.9% +22.2%
Russia (TRF) 24.83 -1.2% +30.8%
India (IFN) 30.98 -1.3% +2.9%
Israel (ISL) 17.07 -2.3% +10.3%
Japan (EWJ) 11.12 +0.9% +8.5%
Singapore (EWS) 13.72 -0.4% +22.6%
Taiwan (EWT) 15.61 +0.3% +25.8%
S. Korea (EWY) 61.66 -0.5% +28.3%
S. Africa (EZA) 67.54 -1.8% +25.2%
China (FXI) 42.83 -0.6% +7.9%
Lat.America (ILF) 52.40 -1.0% +18.3%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service (OIH) 143.62 +0.4% +17.0%
Big Pharma (PPH) 65.21 -0.8% -2.2%
Internet (HHH) 73.45 +0.3% +34.0%
Semis (PSI) 17.05 -0.6% +36.1%
Utilities (XLU) 32.08 -0.2% +6.9%
Defense (PPA) 19.97 +0.8% +17.3%
Nanotech (PXN) 9.99 +0.4% +0.1%
Alt. Energy (PBW) 10.56 -1.8% +4.1%
Water (PHO) 19.10 -0.3% +15.4%
Insurance (PIC) 16.67 +1.5% +23.7%
Biotech (PBE) 21.21 -0.7% +26.0%
Retail (PMR) 18.97 -0.3% +22.2%
Software (PSJ) 25.25 -0.9% +25.4%
Big Tech (QQQQ) 56.53 +0.1% +27.6%
Construction (PKB) 13.57 +0.1% +16.9%
Media (PBS) 14.06 -0.1% +22.5%
Consumer Svcs (IYC) 68.77 +0.0% +25.8%
Financials (IYF) 58.96 +0.0% +15.0%
Health Care (IYH) 66.70 +0.1% +3.0%
Industrials (IYJ) 68.08 0.0% +28.6%
Basic Mat (IYM) 75.68 -0.1% +29.4%
Real Estate (IYR) 57.23 +1.1% +29.7%
Transportation (IYT) 91.07 -0.7% +25.9%
Telecom (IYZ) 23.09 +0.7% +22.2%