Gold Prices And Miners Regain Glitter In 2014

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Investors in gold miners and bullion are glistening with joy because of their dramatic reversal of fortune this year.

After coming in dead last in 2013, gold miners' shares have floated to the top of performance lists. Some strategists and analysts see signs that 2014 may be the year gold regains its shine.

Market Vectors Junior Gold Miners ETF ( GDXJ ) has vaulted an eye-popping 16% on the stock market this year, a remarkable comeback from last year's 61% plunge. By contrast, SPDR S&P 500 ( SPY ) is down 5% after a historic 32% return in 2013.

Market Vectors Gold Miners ETF ( GDX ), tracking large-cap miners, has rebounded 10% this year following a 54% nose-dive last year.

SPDR Gold Trust ( GLD ), the largest ETF tracking gold bullion, with $32 billion in assets, has gained 4% year to date after losing 28% in 2013.

At about $1,250 an ounce, gold currently trades about $300 below gold miners' long-term expectations. And so they have to devalue their assets further and potentially close down more mines, according ETF Securities in London.

Gold miners may have another $113 billion of reserves to write down. The resulting paper loss occurs when a company reduces the book value of an asset on its income statement because the asset's market value is lower.

However, with gold stocks having tumbled 52% in the past year and 66% over the past three years, most of the expected write-downs are already baked into the price, says Simona Gambarini, associate director of research at ETF Securities.

"Gold miners are trading at a 4% discount to net asset value ( NAV ) on our estimates, the lowest level on record," Gambarini wrote in a report released Wednesday. "Gold miners' discount to NAV is unsustainable, and share prices will start to outperform the gold price now that global growth is gaining pace and equities remain in favor."

Despite the rebound, precious metals and miners still trade below their long-term 200-day, where the most violent moves up and down tend to occur. Technical traders consider this a countertrend rally in a long-term downtrend.

"We're not completely sold that the bear market in gold that began in mid-2011 is over," Ron DeLegge, editor of ETFGuide.com, wrote in an email.

"But thus far in 2014 the price action for precious metals has been exactly what technicians would want to see ahead of a full-blown recovery."

GLD would have to regain its 2013 high of 163 a share to confirm a bull run is under way, he added. That target envisions a 35% rise from Wednesday's closing price of 121.

IShares Silver Trust (SLV) rose 1.7% Wednesday and regained its 10-week moving average. It's still 6% below its 40-week line after falling 36% in 2013.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: GDXJ , SPY , GDX , GLD , NAV

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