gold stocks cheapest at level in 9 years

Miners' stocks slip as gold price soars

From: Bloomberg
December 02, 201112:00AM

GOLDMINING stocks are trading at their cheapest level in at least nine years even though the industry's profits are estimated to almost double this year and bullion trades close to its historic high.

The benchmark NYSE Arca Gold BUGS Index, which includes Barrick Gold, Newmont Mining and AngloGold Ashanti, ended last week at 17 times earnings, the lowest since at least November 2002 and below a five-year average of 37 times.

Investors sold equities across the board as Europe's debt crisis soured the corporate profit outlook, and they are ignoring analyst projections for bullion and gold producers.

The gold index's 16 members will increase combined per-share earnings 94 per cent this year, according to Bloomberg estimates.

"When you look back in history, you will say this was a buying opportunity," said John Wong, a portfolio manager at CQS Group's New City Investment Managers in London and lead manager of the $US200 million ($195m) Golden Prospect Precious Metals, a fund holding gold and silver stocks. "It's like a coiled spring."

Gold equities have fallen 4.7 per cent this year, heading for the first annual decline since 2008. Gold reached a record $US1921.15 on September 6 and is set for an 11th annual gain.

"The market doesn't trust big spikes," Citigroup analyst Jon Bergtheil said.

"People will wait to see if gold holds above $1600 for a while."

Gold averaged about $US1706 an ounce in the third quarter, 39 per cent more than a year earlier, and is forecast to average $US1859 next year, according to a median estimate of 18 analysts.

Hedge fund manager David Einhorn said on November 1 that a "substantial disconnect has developed between the price of gold and the mining companies".

Mr Einhorn's Greenlight Capital Re cut holdings of the commodity in the third quarter and moved funds into the Market Vectors Gold Miners ETF, which tries to replicate the Arca Gold Miners Index of metal producers.

Bullion has more than doubled in price since the start of 2008, while gold stocks have advanced about 33 per cent.

Goldminers' earnings per share and per-share cashflow reached the highest levels in at least nine years in the third quarter.

"When earnings are reported, the market will be all goggle-eyed about how much cash is flowing into these companies and what their balance sheets look like," Mr Bergtheil said.

At http://www.theaustralian.com.au/business/mining-energy/miners-stocks-slip-as-gold-price-soars/story-e6frg9df-1226211729530