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Inside the Relative Valuations of Key Gold Miners Today

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Gold’s run in 2017

In 2017, gold prices have been on a roller-coaster ride. While geopolitical tensions, low US inflation, and uncertainty surrounding policy reforms in the US have been working in favor of gold, the Fed’s rate hikes, higher equity market returns, and strong economic data have been working against gold prices.

Many investors right now look to be staying put, and so gold is trading sideways. But we have to wait for the Fed’s rate hike decision in the December meeting, which most market participants agree will be a 25-basis-point hike. The more important thing to watch out will be the tone of the Fed, which will pave the path for hikes in 2018 and beyond.

Miners’ performances

While gold prices (GLD) have gained 11.6% YTD (year-to-date) as of November 24, 2017, gold miners (GDX) have not kept the pace and have gained only 9.1% during the same time period. Gold miners’ leveraged nature has not worked in their favor in 2017, mainly due to company-specific factors taking a precedence over their leverage to metal prices.

There are, however, huge divergences in the stock performances of individual miners. Iamgold (IAG), for example, has gained 44.2% YTD as of November 24, 2017, followed by Franco-Nevada (FNV), Royal Gold (RGLD), Kinross Gold (KGC), and Gold Fields (GFI), which have gained 41.3%, 37.0%, 35.7%, and 35.5%, respectively, YTD.

For more on gold’s performance and outlook, check out the series What Investors Should Know about Gold’s Key Drivers.

Series preview

In this series, we’ll be categorizing precious metal miners into the following five categories, based on their key characteristics:

  • senior gold miners
  • South African gold miners
  • royalty and streaming companies
  • intermediate gold miners
  • silver miners

We’ll discuss the valuation multiples of miners from each of these categories with respect to their close peers, and we’ll assess how their valuations compare to their peers and to historical averages. We’ll also evaluate, based on key catalysts, how the valuations could move going forward.

Continue to the next part for a look at the valuations for senior gold miners.

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