Time to Buy Gold Stocks?
The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.
Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.
Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.
So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.
John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.
In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.
Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.
So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.
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