What Led to the Recent Divergence of Gold and Gold Mining Stocks?



Gold and gold miners

The YTD (year-to-date) stock performances of precious metal miners have been driven more by company-specific factors than by the direction of gold prices. Gold’s (GLD) gain of 10.3% compares with the 12.1% rise in the VanEck Vectors Gold Miners ETF (GDX). This is slightly unusual, given the previous evidence wherein gold miners act as leveraged plays on gold prices.

We saw this situation in 2016 and 2015. Gold prices rose 8% in 2016, followed by a 54% rise in GDX, and 2015 was different only in direction. While GLD lost 11% in 2015, GDX plummeted 25%.

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Company-specific factors

The above graph shows the YTD performance of precious metal miners. There are varied factors driving this performance. Iamgold’s (IAG) outperformance, for example, has been driven its strong operational performance and impressive exploration results.

Kinross Gold’s (KGC) stock has also outperformed on the strength of its project execution and operational performance in 2017. Tahoe Resources (TAHO), on the other hand, has underperformed because the license for its Escobal mine in Guatemala was suspended. Eldorado Gold (EGO) is also facing issues with its mines in Greece and Turkey.

In this series

In this series, we’ll divide miners into the following five categories:

  1. senior gold miners
  2. intermediate gold miners
  3. South African gold miners
  4. royalty and streaming companies
  5. silver miners

We’ll discuss the price performance of each group as well as individual miners in an effort to understand the huge divergences between the stocks’ prices and gold prices.

We’ll also look at Wall Street analysts’ recommendations and ratings. While analysts’ estimates usually lag behind price movements, it’s still important to keep tabs on them as the estimate changes are key drivers of short-term price movements.

Continue reading (below) for a look at the analysts’ ratings for senior gold miners.


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