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Denver paper takes note of gold rally and hometown miner Newmont
By Thom Calandra, Editor
Wednesday, July 10, 2002
When gold stocks rise sharply as a group on extremely
heavy volume, it's almost always a sign of trouble ahead
for the overall stock market.
Analysts say the 7.5 percent advance for U.S.-traded gold
shares this week -- the sector's largest increase since May
2000 -- points to renewed interest in the metal. It's also a sign
investors accept the possibility that the stock market, and
the few industries still holding onto gains this year, could
come crashing down in coming days or weeks.
Gold's price, subdued until this week, is up almost 20 percent
from 12 months ago. The spot price on Wednesday morning
in New York was $315 an ounce, down $1.40 after an almost
a gain of $4 the previous day. Trading activity in top gold
mining companies like Newmont Mining (NEM), Gold Fields
Ltd. (GFI), and Barrick Gold (ABX) is regularly exceeding the
stocks' three-month volume averages.
Analysts and newsletter writers say the metal and
corresponding shares have the winners at a time when the
stock market and the U.S. dollar are the losers. What is new
is the belief that the metal's gains, and those of gold mining
companies, are telltale signs of an impending stock-market
quot;What the market seems to be saying is that we've seen the
end of Wall Street's oversold relief rally, and the resumption
of gold's bull trend,quot; said Bob Bishop, the longtime editor of
Gold Mining Stock Report (www.goldminingstockreport.com).
quot;I'm guessing that (the July 5) lows in many gold stocks are
likely to be the lows for some time, principally because of the
amount of bad news that appears to be baked in the cake of
the broader market and the U.S. dollar. That's good for gold,
and bad for U.S. stocks and the dollar.quot;
Gold shares Wednesday morning were down a little more
than 1 percent, as measured by the XAU (XAU) index of major
Barry Cooper, gold mining analyst at CIBC World Markets in
Toronto, is convinced gold's gains will proceed lockstep with
the fall of the dollar against other major currencies, such as the
euro. The euro is flirting with the $1 level for the first time since
The rise of gold mining shares quot;suggests the broader markets
are not that healthy, but most people could have surmised that,quot;
says Cooper. quot;The equities have been leaders to bullion for the
past while so I would expect we will see some further strength
coming.quot; One of Cooper's top gold stocks, Canada's Goldcorp.
(GG), staged a 9 percent gain in a single day this week.
Joseph Duarte, a Dallas fund manager and author of quot;Successful
Energy Sector Investing,quot; says the mining companies' stellar
stock-market gains this year bode poorly for other industries.
quot;Gold is the refuge du jour, because there isn't any place else to
run. Hospitals, HMOs, drugs, banks, oil -- everything that is 'safe'
is getting clobbered,quot; Duarte said Wednesday.
Homebuilder stocks were one of the few industries holding onto
substantial gains this year. No more. quot;Look at the charts of the
home builders, especially Toll Brothers (TOL) and Ryland
Group (RYL). These stocks are clearly under heavy selling
pressure, suggesting that even these invincible stocks are being
abandoned. That may well be the sign that indeed capitulation
is either here or just around the corner, as when people are truly
Not everyone expects a surge for gold this summer, traditionally
a weak season for jewelry sales. James Turk, founder of
payment system GoldMoney.com and a longtime precious metals
newsletter editor, sees a trading range of $300 to $320 an ounce
for gold quot;in the next 2-3 months, then gold makes another attempt
to hurdle $325 in September or October.quot;
Mike Darda, an economist at Polyconomics Inc. in Parsippany,
N.J., sees a quot;slight upward biasquot; for dollar-gold prices, quot;but not
a bias that will cause the price to rise by leaps and bounds. We'd
need an attack on Iraq for that -- and we still think that prospect
remains remote.quot; Polyconomics sees gold prices moved most
by the supply and demand for currency and bank reserves, which
are influenced in turn by tax policy expectations and geopolitical
quot;For gold to fall hard, we would need to see a turn in U.S. fiscal
policy (i.e., a cut in the capital-gains tax) or another big
downshift in global political risk,quot; Darda says.
John C. Doody, editor of Gold Stock Analyst
(www.goldstockanalyst.com) expects that gold mining shares
will continue to reflect gains in the metal. The quot;rule of thumb is a
1 percent change in gold price yields a 3 percent change in stock
price,quot; says Doody. quot;This is because the price increase adds
directly to the bottom line, or takes from it if the price falls.
the recent $15-an-ounce slide, or 5 percent, that saw most stocks
off 15 percent to 20 percent.quot;
Higher gold prices provide gold miners with more cash flow from
their annual production. Investors in turn are more willing to pay a
higher price for a miner's reserves, generally 10 times annual
production for the best companies. quot;The price increase,quot; he says,
quot;makes all the reserves more profitable and may make marginal
ounces profitable now, which weren't economic at a lower price.quot;