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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Wednesday, November 11, 2009

Gold Surges to Record High, Again

The precious metal continues its rally above $1,100 as the dollar remains weak.

Gold continued to surge higher and set a record high Wednesday as the dollar remained weak. December gold futures rose $12.10 to hit an all-time record price of $1,119.20 an ounce intraday and settling at $1,114.60 an ounce.

Investors are moving their money into gold because of a weak dollar, weak economic conditions, and concerns over commercial real estate loans at financial institutions.

The U.S. dollar index (DXY) bounced back above 75.00, but was trading by 9:00pm tonight at 74.94. The DXY tracks the performance of the dollar against a basket of other major currencies. The 74.00 target area is the next critical technical support line. The dollar is expected to remain soft as the Federal Reserve holds interest rates near zero into next year. Commodities priced in dollars, like gold, are viewed as safe haven investments and move higher as the dollar weakens.

Gold is up eight days in a row, including a surge of 5 percent last week on speculation that central banks will buy more of the yellow metal as an alternative to the dollar. The rise in gold was sparked, in part, by the Reserve Bank of India buying 200 metric tons of gold last week from the International Monetary Fund.

The price of gold is up more than 28 percent this year, with Goldman Sachs forecasting it could go as high as $1,200 an ounce by the end of the year if real interest rates stay negative.

The Federal Reserve is caught between keeping interest rates low to bolster the weakest job market in 26 years while being concerned that low interest rates may lead to future inflation in hard assets and crude oil.

Several gold mining stocks also surged higher on continued dollar inflows.

Gold mining major Newmont Mining Corp. (NYSE:NEM) rose 78 cents, or 1.6 percent, to $51.24 and hit a 12-month high of $51.97 intraday.

Increased attention is likely in the junior gold mining space with the launching of the Van Eck Global Market Vectors Junior Gold Miners ETF (GDXJ). Share prices are even higher for junior gold miners.

Junior gold producer and Market Vectors Junior Gold Miner Index component Jaguar Mining Inc. (NYSE:JAG) was up 22 cents or 2.1 percent, to $10.55 per share.

Canadian TSX listed stock Terrane Metals Corp. (TSX:TRX; OTC:TRXOF) was up 4 cents, or 4.1 percent, to C$1.01 per share.

Monday, November 9, 2009

Emerging Gold Producers Ranked -- Market Cap $ Per Oz. of Production

Errata: The previous version of this article contained errors in the data. This one includes the correct data.


This is an update of my market capitalization $ per ounce of production ranking for 2009.

As I have written before, this technique provides a standard quantitative comparison of company share valuation. Again, it is just one dimension used to assess whether or not an emerging junior gold producer deserves further due diligence. This data--and much, much more--is updated and provided to subscribers of the Gold Stock Strategist newsletter at the beginning of every month.

There are several qualitative measures for assessing junior gold mining stocks that are important like political risk, currency exchange risk, property rights risk, remote site risk, single mine risk, operational risk, management competence risk, and others. Investment decisions should not be made on any single dimension of emerging gold producers.

The following is my most recent analysis of 36 emerging gold producers using the market cap to production metric based on closing share prices on October 30, 2009. The lower the value, the more undervalued the stock on this narrow dimension of valuation.

RANK COMPANY SYMBOL MARKET CAP (million$) MC / OZ. PROD. ($) Proj. 2009
1 Oceana Gold $OGDCF $135 $450
2 ATW Gold $ATWGF $14 $560
3 MDN Inc. $MDNNF $51 $680
4 Richmont Mines $RIC $72 $960
5 Gold-Ore $GREXF $44 $978
6 New Guinea Gold $NGUGF $17 $1,133
7 Alexis Minerals $AXSMF $55 $1,213
8 Metanor Res $MEAOF $39 $1,625
9 Claude Resources $CGR $79 $1,756
10 Golden Star Res $GSS $725 $1,813
11 Castle Gold $CSGLF $77 $1,925
12 Northgate $NXG $751 $1,976
13 Wesdome $WDOFF $184 $2,457
14 Troy Resources $TRYRF $137 $2,491
15 Santa Fe Gold $SFEG $103 $2,568
16 Dynasty Mtls & Mng $DMMIF $130 $2,608
17 La Mancha $LACHF $223 $2,624
18 Capital Gold $CGLD $149 $2,980
19 Timmins Gold $TMGOF $47 $3,133
20 Gammon Gold (AuEq) $GRS $1,110 $3,828
21 Jinshan Gold
$JINFF $270 $3,857
22 Jaguar Mining $JAG $665 $4,030
23 Aurizon $AZK $693 $4,617
24 Alamos Gold $AGIGF $880 $5,867
25 New Gold $NGD $1,400 $7,000
26 Great Basin Gold $GBG $490 $8,167
27 Allied Nevada $ANV $587 $8,386
28 Minefinders $MFN $621 $10,350
29 Gold Resource $GORO $366 $10,457
30 San Gold Corp $SGRCF $637 $12,740
31 Lake Shore Gold $LSGGF $683 $27,320
32 Hawthorne Gold $HWTHF $23 --
33 NovaGold $NG $789 --
34 Osisko Mines $OSKFF $1,930 --
35 Terrane Metals $TRXOF $84 --
36 Vista Gold $VGZ $113 --

As always, I hope this helps readers get a sense for the relative value of these companies based on this single valuation metric.


The Gold Stock Strategist
Check out the Gold Stock Strategist newsletter for detailed resource, operational and valuation information on over 50 gold producers. The letter provides recommendations in three risk-based categories—conservative, growth, and speculative. One recommended speculative pick, Castle Gold, is up 87 percent on a bid from Argonaut Gold since being picked by the Gold Stock Strategist as a buy-out candidate in the August 1 letter.

Wednesday, November 4, 2009

Gold Approaches $1,100 on FOMC Statement

Gold hit a new record high above $1,095 an ounce for the second day in a row on Wednesday following the Federal Open Market Committee pledge to keep interest rates low for an extended period of time. The FOMC statement to retain "exceptionally low levels of the federal funds rate for an extended period" helped to spike an already surging gold price.

The FOMC news follows right on the heels of a perfect storm of events for higher gold prices. The nation remains awash in debt and extraordinary budget deficits as far as the eye can see.

Earlier today the Treasury Department announced they are working closely with Congress to pass legislation needed to lift the federal government’s $12.1 trillion debt ceiling next month to avoid a default on the nation’s debt obligations.

Yesterday, the White House budget director made comments in a speech that $1.4 trillion annual budget deficits are “serious and unsustainable.

The International Monetary Fund (IMF) said on Tuesday it had sold 200 metric tons of gold to the Reserve Bank of India for $6.7 billion. The 200 metric tons represent about 50 percent o the total proposed sale of 403.3 metric tons approved by the IMF Executive Board in September.

The IMF sale of gold increased the yellow metal's appeal as it became clear that nations are looking to diversify their foreign reserves away from U.S. dollars. Gold strategists were expecting China to be the first and largest buyer of the IMF's gold , but India bought the first tranche of IMF gold sales. Observers are speculating over the fate of the remaining 203 metric tons of gold for sale by the IMF. In addition to China, Russia is reported to be interested in buying some share of the remaining gold from the IMF.

Also on Tuesday, gold rallied along with the dollar, another bullish indicator for a higher gold price. Gold prices generally move in the opposite direction of the dollar. Strength in the greenback makes gold more expensive for holders in other currencies and reduces gold’s appeal.

Gold prices cut through key technical resistance levels like a hot knife through butter. Gold is now poised to make a run at the psychological $1,100 an ounce level. Spot gold struck a high of $1,095.40 an ounce on Wednesday, pulling back in the late evening to just under $1,090.

Higher gold prices on Wednesday pushed gold mining stocks higher as well on renewed fears that the Federal Reserve Bank will fuel another bubble in asset prices. Barrick Gold $ABX, Jaguar Mining $JAG, and Kinross Gold $KGC were all trading more than 2.5 percent higher today. Not all gold miners were up in share price though, as Goldcorp $GG dropped about 0.6 percent today despite a higher gold price.

The chart below shows that gold remains in the midst of a long-run bull market that started in 2001.

The price of gold is going higher and will likely be characterized by "higher highs" and "higher lows" due to unprecedented levels of U.S. public debt and little political will to rein in extraordinary budget deficits. Consequently, the greenback will continue to drift down providing additional time to get in on this gold bull market.

Quality gold mining stocks are still lagging the price of gold as investors weigh whether gold will drop back below $1,000 an ounce or surge to $1,100 an ounce and beyond. Gold producing companies with growing reserves in politically stable regions are the best way to play a rising price of gold. Pricing leverage provided by gold producers can create outsized returns in a rising price of gold environment.

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