Warm bullion, hot stocks

Twenty of the hottest, of 236 listed gold stocks, the world's top performing equities subsector.

Author: Barry Sergeant
Posted: Wednesday , 21 Jan 2009

JOHANNESBURG -

As global equity and credit markets continue to squirm along through a stubbornly sticky quagmire, listed gold stocks continue to dominate the front line of recovery in no small way. The MSCI Barra Dollar Index for global equities - of all kinds - currently trades some 55% off its highs, seen in October 2007.

A large count of listed gold stocks - 236 around the world - have also fallen by around 55% from highs, measured on a fully weighted average basis. The stock price highs were recorded in or around March 2008, when the dollar gold price made all time records at just above $1 000 an ounce. But then the contrast: where the MSCI Barra Dollar Index for world equities has only risen 8% from its lows, seen in November 2008, gold stocks have risen, or "bounced" by a rather huge 93% from trough prices, seen around the end of October 2008.

At this point, the global capitalisation, or market value, of listed gold stocks runs up to a total of nearly $200bn, compared to a high of around $420bn in March 2008. While this contraction of value cannot be understated, gold stocks currently rank as the best performing equities sub-sector in the world, followed by listed silver stocks, and then listed uranium stocks.

Many thousands, if not millions, of words have been written about the positioning of gold in a soured world economy, be it as the "anti dollar", as an alternative monetary instrument, as a safe haven for increasingly disenchanted investors, or as a hedge against inflation, but the one cold fact is that dollar gold bullion ranks as the "least underperforming" of major traded commodities. It currently trades around 15% below its highs, compared to losses of 50% and more for each of the base metals, platinum, palladium, and all the elements in the energy sector; uranium, however, is showing signs of coming back. Most soft commodities have also crashed in price.

Within the universe of listed gold stocks, meteoric rises have been recorded by certain individual stocks. Where all listed gold stocks have bounced by an average of 93% from trough prices, the top 20 have orbited upwards by a weighted average of nearly 170%. As may be expected, smaller stocks lead the charge: Azteca Gold, La Mancha Resources, and Tanami Gold, three stock names that have literally gone into orbit.

Azteca is focused in Idaho, Nevada, Alaska, and Mexico; La Mancha operates three gold mines, with production distributed between Africa and Australia, and is actively developing an advanced project in Australia, while Australia's Tanami ranks as some kind of a miracle recovery stock, back, as it were, from a point of no return.

But among the hottest gold stocks may also be found a number of far bigger Tier II names, in the form of Eldorado, Red Back, JSC Polymetal, and Centerra, with the latter two ranking as recovery stocks. There are also Tier III names Western Goldfields, and Novagold, with the latter also ranking as a recovery stock.

While a good number of these high rising gold stocks may be two small, or too risky, or both, for big institutional money, the leading Tier I gold equities performance league is always there, led by Kinross, and followed - some distance behind - by Newcrest (a big Australian name), Barrick (the world's biggest gold miner, by ounces and value), and Lihir (another Australian name).