Times have been tough for investors hoping for a quick turnaround in America’s economic fortunes; slow growth, high budget deficits and extensive unemployment have caused many to lose confidence in the dollar. Thanks to this and record low yields, investors have sought the relative security of the precious metal markets with gold in particular shinning throughout the crisis. As demand for gold has increased, the price of the precious metal has soared; the top gold ETF has gained 14.1% over the past three months and more than 20.7% so far in 2010. However, this trend has not been limited to physically-backed ETFs, equity-focused funds have also surged as investors have scooped up these securities in hopes that with flat wages and minimal inflation in a number of other areas, margins have likely skyrocketed at a number of gold mining firms.
One company that is likely to be especially in focus in this environment is Barrick Gold (ABX), the world’s largest pure gold miner. Last year the company produced 7.4 million ounces of the metal which at current prices would bring in roughly $9.8 billion in revenues. However, investors are likely to be concerned over the rapidly declining output from the company which has fallen by over one million ounces in just the past two years suggesting that the company is struggling to find new sources to balance out the declines from some of its more established mines. Nevertheless, the company had projected an uptick in total ounces mined and with net cash costs likely to be stable, the company could see its income surge from last year’s levels if gold prices continue to stay elevated [see Gold ETFs: Boom Or Bust?].
With these trends in place today looks to be an especially important day for the metal mining industry as Barrick Gold Corp gives its quarterly earnings report. The company is projected to earn 76 cents a share and looks likely to post impressive increases over the year ago quarter thanks to gold’s surging price which is roughly 28% higher this quarter than it was in the same period in 2009. If ABX is unable to beat or at least match expectations in this positive environment it seems likely that investors will punish the stock severely during Thursday’s trading session [also read Playing Precious Metals Through Equity ETFs].
One of the most popular ways to gain exposure to gold mining firms has been the Market Vectors TR Gold Miners Fund (GDX) which has amassed close to $7.8 billion in assets and trades just under 10 million shares a day. Barrick Gold Corp makes up 17.3% of GDX’s total assets and is closely followed by large holdings in Goldcorp (12.3%) and Newmont Mining Corp (11.3%). GDX holds 32 firms in total and has surged over the past quarter, posting a gain of 16.2%. Should ABX manage to post solid results and guidance for the rest of the year, GDX could continue its march higher well into 2011 [see Mining ETFs: Eight Ways To Play].
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Disclosure: Eric is long gold bullion and IAU.
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