Today, the bullion for immediate delivery went down 0.34% on the Hong Kong market to 8,791.39 Hong Kong Dollars ($1,131.99) per ounce from the prior close of HK$8,818.70 per ounce, before retracing to a price of HK$8,803.20 per ounce.
Source: Kitco.com
On the London Bullion Market, gold closed at $1125.70 per ounce, down $10.55 per troy ounce or 0.93% from yesterday's close.
On the Comex, gold is going down as well. At the moment, gold futures are trading at $1,132.65, down $10.05 per ounce or 0.88% from the previous close.
Since November, gold has gone down on the bullion markets and on the Comex, reverting the uptrend that characterized the first part of 2016.
Following the trend of the precious metal, several gold mining stocks tumbled on the stock markets. The downtrend in the gold industry is reflected in one of the most representative indexes of the industry, the VanEck Vectors Gold Miners (GDX, Financial). The index lost 38% over the last four months, with four major dips:
- -12.3% from $30.75 on Aug. 18 to $26.97 on Aug. 24
- -9.9% from $25.96 on Oct. 3 to $23.40 on Oct. 4
- -15% from $24.59 on Nov. 9 to $20.92 on Nov. 11
- -9.8% from $21.04 on Dec. 13 to $18.99 on Dec. 15.
Except for the last four months, 2016 has been a good year for gold stocks. Investors benefited from amazing increases in the stock price of several gold stocks.
One of the best performers during the first two months of 2016, when gold rallied 15.58% on the London Bullion Market, was Barrick Gold Corp. (ABX, Financial). The world’s largest gold producer gained 79%, signalling that investors preferred investing in gold mining companies with substantial gold reserves which, based on an assumed gold price of $1,000, were well defined in a rising gold price environment where the price per ounce did not go beyond $1,200.
Among the gurus who invested in Barrick earlier in 2016, George Soros (Trades, Portfolio) stood out. He opened a position in the world’s largest gold producer, buying approximately 19.4 million shares.
From March to August, when gold increased by another 8.8% and traded well beyond $1,200 per ounce on the London Bullion Market, other gold mining stocks increased at a faster pace than Barrick. This was particularly true among mid-tier gold producers such as Iamgold (IAG, Financial) and Yamana Gold (AUY, Financial), which gained 120% and 113%.
With the price of the bullion ranging between a low of $1,210.50 per troy ounce and a high of $1,370.00 per troy ounce, investors like Donald Smith (Trades, Portfolio), who increased his position in Iamgold by 892.68%, decided that the time was right to invest in other gold mining companies that became capable of “economically” mining the precious metal.
With gold reserves of 7.69 million ounces, as declared at the end of 2015, and based on an assumed gold price per ounce of $1,200 versus an average price of $1,272.564, Iamgold’s deposits were well defined and the company could “economically” mine the metal from those reserves.
Determining how many gold reserves a mining company can rely on to extract the metal is crucial because when a company does not define its reserves correctly, it can have negative consequences on operations. For instance, in 2016, several miners "had problems in defining their deposits and recovering the metal from those deposits,” Brent Cook, a veteran economic geologist and mining stock analyst, said to Kitco.com.
Now investors are wondering if 2017 will replicate the pattern seen in the first half of 2016 and which gold mining companies make good investments.
Cook said, “We’re going to see the precious metals back off into early next year as the markets continue its [...] unjustified rise, and the dollar as well. But reality is going to set in next year and once it does, I expect investors move back into precious metals."
Cook said he sees some of the best buying opportunities for 2017 in three gold mining companies:
- Mariana Resources (TSXV:MARL, Financial) is engaged in exploration activities in Turkey, Suriname, Chile and Peru. It is also developing gold, silver and copper projects in Turkey, Argentina and Ivory Coast. Mariana Resources is currently trading at 1.10 Canadian dollars (82 cents), up five cents (or 4.76%) from the previous trading day. The 52-week range is between 90 cents and CA$1.40. The company has a market capitalization of CA$137.27 million with 95.87 million shares outstanding, of which 90.17 million can be traded on the stock exchange. As of the most recent quarter, the company had approximately CA$7.3 million in cash on hand and approximately CA$1.55 thousand in total debt.
- Cordoba Minerals (TSXV:CDB, Financial) is engaged in exploration activities in Colombia. There, together with High Power Exploration Inc., it is developing the San Matias Project. “HPX can earn up to a 65% interest in the San Matias Project by funding the Project and completing a feasibility study,” according to the company’s website. Cordoba Minerals is listed on the TSX Venture Exchange and is currently trading at 67 cents, down one cent (or 1.47%) from the previous trading day. The 52-week range is between 12 cents and CA$1.08. The company has a market capitalization of CA$58.17 million and has 86.82 million shares outstanding, of which 43.98 million can be traded on the stock market.
- Mirasol Resources (TSXV:MRZ, Financial) is engaged in the discovery of precious metal veins in South America. The company holds silver and gold properties in Argentina and Chile. Mirasol Resources is listed on the TSX Venture Exchange and is currently trading at CA$1.21, down 4 cents (or -3.20%) from the previous trading day. The 52-week range is between 77 cents and CA$3.50. The company has a market capitalization of CA$59.33 million and has 49.03 million shares outstanding, of which 32.63 million can be traded on the Canadian stock market. The company had CA$26.49 million in cash on hand as of the most recent quarter.
Disclosure: I have no positions in any stock mentioned in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
