Gold Miners' Stocks Lag Behind Metal Prices Amid Record Growth

Gold miners' shares have lagged behind the rise in gold prices, with companies like Barrick Gold and Kinross Gold citing cautious market forecasts and geopolitical risk as reasons for the disparity. Despite record profits and increased dividend payments, investors are turning to gold exchange-traded funds (ETFs) as an alternative to gold equities, which are tied to the stock market and subject to real-world risks. Executives from Barrick and Kinross argue that their shares are undervalued and will eventually catch up to gold prices as long-term forecasts rise.

Key Takeaways:

• Barrick Gold's CFO Jamie Sokalsky attributed the lagging stock price to cautious market forecasts, which still peg the long-term gold price well below current prices.
• Long-term price forecasts average around $1,300 an ounce, more than $400 below current prices.
• Each $100 increase in gold prices adds $500 million in earnings to Barrick's profit potential, which is not being recognized by long-term market forecasts.
• Kinross Gold's CEO Tye Burt stated that his company is undervalued, considering its $400 million in operating cash flow last quarter and 10 operating mines.
• Analysts agree that geopolitical risk and acquisitions have introduced risk into gold miners' stock prices, contributing to the lagging performance.
• Gold exchange-traded funds have become a more attractive option for investors, offering higher correlation with gold prices.
• Gold miners have raised their dividends in an attempt to attract investors, with Barrick increasing its dividend by 25% last month.

Statistics:

• Long-term gold price forecasts average around $1,300 an ounce.
• Current gold prices are more than $400 above the average long-term forecast.
• Each $100 increase in gold prices adds $500 million in earnings to Barrick's profit potential.
• Kinross Gold Generation Cash Flow last quarter was $400 million.
• Gold ETFs correlation with gold prices is higher than gold equities.
• Goldcorp's share price is up only 8% this year, compared to gold's more than 20% gain.

Sources:

• Dow Jones Commodities News via Comtex.
• Barrick Gold Corp. (ABX).
• Kinross Gold Corp. (KGC).
• Goldcorp Inc. (GG).
• Anne-Laure Tremblay, BNP Paribas precious metals strategist.