Are gold producers share prices cheap or not? In the past year...

Are gold producers share prices cheap or not?

In the past year POG has increased by $US666 or by 35% (see image below).

According to the WGC (World Gold Council) AISC has been about $US1,400 for gold miners with a margin of $556 a year ago which is now $1,222!

So if AISC has not changed then gold producers margins have increased by a whopping 120% in the past year assuming current gold prices. Let’s assume AISC has increased by a level that reduces that to a 100% increase in margins.

On a like for like basis maybe we should expect gold producers share prices to reflect their better profitability and that they have increased by 100%.

However according to the GDX (major gold producers ETF) they have only increased by 36% (see image below). So miners margins have increased by circa 3 times the increase in share prices so what gives?

However, it’s worse than this as miners costs are higher than AISC so margins have increased by a lot more than 100% or 120%. If AIC is $1,600 then gold producers margins have nearly tripled but share prices have only increased by 36%!

So gold producers are now much cheaper than they were a year ago based on profits relative to share prices.

Obviously no one seems interested in buying gold mining shares until they want to buy them and who knows when that will occur but when it does gold miners share prices will likely surge.

But wait analysts of gold producers and the general investment community are predicting the POG will fall so maybe gold stocks are expensive! Are they right or just dreaming? The alternative is gold miners costs are going to explode by over 50% in one year!

So who is right?

A. The analysts and general investment community who believe POG will fall or AISC will explode higher?
B. The market is plain wrong and is significantly mis-pricing gold miners
C. Investors who are buying gold miners hand over fist and gold bugs