Gold Prices Could Soar and Gold Mining Stocks Could Reward Immensely
It might be time to consider gold mining stocks if you’re hoping for massive returns in the next few years.
You see, over the past few years, gold has been disregarded. It has been called a pet rock, a useless asset, and several other names. In this environment, gold mining stocks have been sold immensely.
Now, however, gold is starting to become a “thing” again; there’s positive sentiment building up. We’ve been seeing big banks come out in favor of the yellow precious metal. The fundamentals of the gold markets have been getting better too.
So, in the midst of all this, gold mining stocks seem like a great opportunity.
Let’s look at some numbers.
From their highs in September 2011, gold prices have declined by 36%.
Gold mining stocks have tumbled as well. Look at the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), an exchange-traded fund that tracks senior gold mining companies: it has fallen by close to 70%.
For every one percent decline in the price of gold, gold mining stocks have tumbled by close to two percent.
Extracting the Value of Gold Mining Companies
If the gold price increases, gold mining stocks could do really well. They have been scrutinized by investors, and a lot of the stocks are selling for pennies on the dollar.
Take Goldcorp Inc. (NYSE:GG) as one example. It is one of the biggest and most well-recognized gold miners out there. Currently, GG stock is priced at around $11.00 and has a market capitalization of $9.4 billion.
As per the most recent data, the company has 53.5 million ounces of gold and 642.5 million ounces of silver in “proven and probable reserves” (think of these reserves as the gold and silver that could be sustainably extracted at the current price). (Source: “Goldcorp Mineral Reserves,” Goldcorp Inc., June 30, 2017.)
Simple math here: just accounting for the gold in proven and probable reserves, each ounce is worth about $176.00. That’s 85% below the current gold price.
Here’s the thing: if you add silver reserves to this (assuming that 90 ounces of silver = 1 ounce of gold), the per-ounce price of gold declines much, more.
Mind you, Goldcorp also has almost 37.1 million of gold and 326.9 million ounces of silver in “measured and indicated” resources. So, that per-ounce price drops much, much more.
Dear reader, you really have to ask yourself what would happen if, all of a sudden, gold prices skyrocket. Imagine this: you wake up one day and see that gold went up $50.00 overnight. What would happen to mining stocks?
They could also skyrocket because their profitability surges as the price of gold increases. When that happens, the gold mining stock prices would reflect this fundamental change.
Goldcorp, for instance, produces an ounce of gold at all-in sustaining costs of $850.00. So, the company nets about $380.00 an ounce with the current gold price of $1,230.
If gold prices jumped 15% to around $1,414, Goldcorp’s profits would rise to $564.00 an ounce, or about 48% from the current levels. This could be massive for GG stock.
Please note, I am not making any recommendations regarding Goldcorp stock. This has just been an illustration on how gold mining stocks could be an attractive opportunity for some.
With all this in mind, I can’t stress enough what I said earlier: gold mining stocks are at least worth a watch.