Gold Miners Trading At Bargain Price To Gold: Is GDX The Buy Opportunity For The Remainder Of 2023?

Gold prices, as tracked by the SPDR Gold Trust GLD, closed the first half of 2023 with a shy performance of 5%, significantly underperforming the equity asset class, with the SPDR S&P 500 ETF Trust SPY up by 16% and with the Invesco QQQ Trust Series 1 QQQ up by a staggering 38%.

But while prices of the precious metal are only 7% off their all-time highs, steep price discounts are clearly visible among gold mining stocks.

The VanEck Gold Miners ETF GDX is trading one-third lower than its highs in 2020 and 54% lower than its all-time highs in 2011, attracting the attention of value hunters.

By simply correlating the price of gold (GLD) to that of the Gold Miners ETF (GDX), the latter should be trading at least 30% higher than current levels when looking at a 5-year timeframe.

Does this present a buy opportunity for investors to enter an undervalued sector before its recovery, or is it a potential value trap waiting to unfold?

North American Gold Miners Offer Attractive Valuations

When analyzing the U.S.-listed large-cap gold miners included in the VanEck Gold Miners ETF, they stood out with highly appealing valuations according to common stock metrics, including price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, and price-to-median analyst price target spreads.

Newmont Corporation NEM, one of the largest gold producers globally and is headquartered in Colorado, trades at 15 times its projected 12-month earnings, showing one of the lowest forward P/E ratio of its history. Compared to the median analyst price target ($59), NEM currently trades at $43.1 per share, effectively implying a 38% discount.

Another industry giant with a similar forward P/E to Newmont is Barrick Gold Corp. GOLD, which is trading at a 30% discount to the median analyst price target. Barrick Gold also screens price-to-book value of 1.3x, which is one of the lowest for the North American market.

Agnico Eagle Mines Limited AEM, a Canadian-diversified gold mining company operating across Canada, Finland, and Mexico, is trading at a 22x forward P/E ratio, well below its 5-year average of 38.9x. When looking at the median analyst price target ($65), AEM current market prices ($50) imply a 30% discount.

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Table: Gold Mining Companies Exhibit Undervalued Equity Metrics