Market Overview

S&P Capital IQ Bullish on Gold Miners

It is not a secret that shares of gold miner ETFs have performed disappointingly relative to gold futures. And it is also not a secret that this scenario has played out for a long enough time period that calling a bottom in gold miners has been hazardous.

However, the prevailing bull case for gold miners says signs of life will soon emerge. In a research note, S&P Capital IQ said it remains positive on gold's outlook for this year and 2013.

S&P Capital IQ provided a number of reasons for its bullish outlook on the yellow metal.

"First, given that the Federal Reserve is committed to keeping short-term interest rates at near zero through 2014, we see no opportunity cost for buying and holding gold anytime soon," S&P said in the note. "Second, despite higher gold prices, global mine production has been stagnant for over a decade. According to data compiled by Gold Fields Minerals Service, a U.K.-based metals consulting firm and publisher, global mine output in 2011 totaled 2,809 tons, up eight percent from 2,602 tons in 1999. We believe production will remain stagnant for the next several years, as old mines are becoming depleted and are not being replaced to the extent needed to significantly lift output."

S&P also cited volatility among major global currencies and elevated "concerns over solvency of international sovereign debt." The research provider added, "In our view, the threat of debt defaults increases the appeal of gold as a safe haven asset."

In addition, rising money supply in the U.S. could be a catalyst to drive gold higher this year, according to S&P.

In terms of individual gold miners, S&P has a five-star rating on Barrick Gold (NYSE: ABX) and four-star ratings on Newmont Mining (NYSE: NEM) and Randgold Resources (NASDAQ: GOLD).

Those three stocks combine for about 30 percent of Market Vectors Gold Miners ETF (NYSE: GDX). With almost $8.1 billion in assets under management, GDX is the largest ETF tracking gold mining equities. GDX has struggled this year, falling almost 15 percent even as ETFs backed by physical gold have risen. The SPDR Gold shares (NYSE: GLD) and the iShares Gold Trust (NYSE: IAU), the two largest gold ETFs, each rose about three percent year-to-date.

Small-cap gold miners have performed even worse than their large-cap counterparts year-to-date. During this period, the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) has fallen almost 20 percent. Unlike some of its peers, GDXJ has some mid-cap exposure and allocations to silver miners. The fund has nearly $2.3 billion in AUM. S&P did not include ratings for either gold miner ETF in the research note.

For more on mining ETFs, click here.

Posted-In: Analyst Color Long Ideas News Sector ETFs Short Ideas Futures Commodities After-Hours Center Best of Benzinga

 

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