The other side of the mining coin is a bit more positive though. Gold miners Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corp. (NYSE: ABX), and Yamana Gold Inc. (NYSE: AUY) have seen their share price rises outstrip bullion price rises for the first time in at least a year. The SPDR Gold Trust (NYSE: GLD) has lost about -5% of its value in the last month, while the gold miners are all up more than 1% and Newmont is up nearly 8%. The Market Vectors Gold Miners ETF (NYSE: GDX) is up about 1% in the past month, but the Market Vectors Junior Gold Miners ETF is down close to -5%.

In silver, the story more closely follows the copper downturn. Silver Wheaton Corp. (NYSE: SLW) is up about 1% in the last month, while the iShares Silver Trust (NYSE: SLV) is down about -9% and the Global X Silver Miners ETF (NYSE: SIL) is off nearly -5%.

Copper prices have been trending downward more strongly for about the past six weeks. Since posting a high above $4.60/pound in February, copper now fetches about $3.55/pound. Weaker economic forecasts for the developed countries have caused some of the decline, but that has been more gradual. The 600-pound gorilla is China, where Rio’s CEO said that there is evidence that the country is de-stocking as the Chinese government tightens lending in an effort to cool inflation. The side-effect of that tightening is that growth is also slowed, reducing demand for copper and iron ore.

China’s de-stocking has been developing gradually over the past several months, but Albanese’s admission is the first statement from a major player in the mining sector that the sharp upturn in commodity prices has now turned south. The question, of course, is when it will turn back north again.

Commodity prices on everything from food to oil have been falling as demand expectations are adjusted to account for nearly universal slow growth. The key for copper and iron ore producers is China. Rio’s CEO made a special note of saying that the company’s largest Chinese customers “are not showing any sign of slowdown.” But, remember, he also said that there is evidence of de-stocking. Which is it?

The signals all point to a Chinese slowdown in both manufacturing and construction. But the copper and iron ore miners are hopeful that the low price for copper will spur a new round of buying. This could be a case of finding what you’re looking for in the tea leaves.

Copper is trading down almost -6% today, and gold is off more than -2%, at around $1,765 about an hour and a half before markets open this morning. Rio’s pre-market price is now $47.96, about -6.5% lower than the new 52-week low the stock posted yesterday. BHP is also below its 52-week low, at $68.56 in the pre-market, down about -4.75% from yesterday’s close. Vale is down about -3.5%, at $24.41, just pennies above its 52-week low of $24.08. And Freeport-McMoran is down more than -4% from yesterday’s close, at $34.10, well below the new 52-week low of $35.56 that the stock posted yesterday. Southern Copper is down about -1.5% in the pre-market, at $27.50, just pennies above its new 52-week low set yesterday.

Gold miners are moving down this morning’s pre-market as well, probably following the downward move in gold. Newmont is off about -2.5%, at $66.00, in a 52-week range of $50.05-$71.25. Barrick is off nearly -3%, at $51.75, in a 52-week range of $42.50-$55.95. Yamana is off nearly -3.75%, at $15.79, in a 52-week range of $10.41-$17.47. And it’s interesting that these gold miners’ shares traded quite near 52-week highs yesterday.

Paul Ausick

The rally in gold has really started to pull up the rest of the gold sector since the middle of last week.  To show this, the Market Vectors Gold Miners ETF (NYSE: GDX) tracks the largest gold miners and it came within about 1% of 52-week highs today.  Shares closed Monday up almost 4% at $63.70 and the 52-week trading range is $49.57 to $64.62.  The high on the day was $64.05.

Goldcorp Inc. (NYSE: GG) is based in Vancouver, Canada and it acquires, explores, develops and operates mines and gold operations throughout Canada, United States, Mexico, Central America, and South America. The stock closed up 4.8% at $54.14 against a 52-week trading range of $39.04 to 56.20.  That is less than 4% from a 52-week high for the $43.7 billion gold giant.

Newmont Mining Corp. (NYSE: NEM) is a $31 billion Colorado-based producer with operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico.  The stock closed up 4.8% at $54.14 against a 52-week trading range of $50.05 to $65.50.  That is right at 4% under a 52-week high and this one was helped by a Citigroup upgrade this morning.

Yamana Gold, Inc. (NYSE: AUY) is a $12 billion Toronto, Canada-based producer and explorer throughout many properties in Central and South America.  The stock closed up 3.7% at $16.09, and the stock hit a new 52-week high of $16.18 today.  Yamana’s all-time high was close to $20.00 back in early 2008.

Royal Gold, Inc. (NASDAQ: RGLD) is a $4 billion Colorado-based acquirer of gold mining and production royalties and shares hit a new 52-week high of $73.78 today.  The close was up about 4% at $73.00 for the day after hitting a 52-week high of $73.78. That was also an all-time high.

The SPDR Gold Shares (NYSE: GLD) hit a new high, as did gold of course, today at $184.82.  At last look, gold was trading up $45.30 in New York at $1,897.50 per ounce.

The run higher in gold each day is beginning to feel more and more like the crude oil rally from 2007 into 2008.  That is a market where the base just keeps rising and rising for virtually the same news each day.  The difference here is that gold does not run economies in the same manner as oil.  At least it does not as long as the gold-barter system doesn’t return.

JON C. OGG

In a story a couple of weeks ago, we included a chart of how far off 52-week highs Compania de Minas Buenaventura SA (NYSE: BVN), Golden Star Resources, Ltd. (AMEX: GSS), Northern Dynasty Minerals Ltd. (AMEX: NAK), and US Gold Corp. (NYSE: UXG) had fallen.  We also recently looked at larger miners like Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corp. (NYSE: ABX), Goldcorp Inc. (NYSE: GG), and Yamana Gold, Inc. (NYSE: AUY) that were doing much better overall.

It seems that the stock market just wants to treat most gold stocks like regular stocks as many are just nowhere near highs like the shiny yellow stuff.  Here’s a chart of where these companies’ share prices stand as of mid-morning today:

Buenaventura has made up about 8% of its share price in the last two weeks, going from down -34.51% to down -26.59%. Golden Star has moved from down -59.90% to down -48.92%. Northern Dynasty has picked up a little as well, from down -53.91% to down -51.52%. US Gold has moved from down -37.39% to down -31.41%.

Except for Northern Dynasty, which is really a long-term play, the others have equaled or surpassed the rise in gold prices since the beginning of the month.

Among the larger companies, the widest differential a week ago was Barrick, down about -16%. Today, Barrick is down about -12% from 52-week highs. Yamana is almost even. Goldcorp evacuated employees and closed one of its Canadian mines because of nearby forest fires last Thursday and there is no word yet when the mine will reopen.

Because the big miners were closer to 52-week highs, their differentials closed less. Still, closing about a quarter of the gap in a week is an impressive performance.

The gap between current share prices and 52-week highs for the junior miners still has a long way to go before it is closed. But at least one of the larger miners could close the gap in another week if gold prices continue their upward march. And the others are within striking range as well.

Buenaventura shares are up more than 4%, to $41.99; Golden Star shares are up more than 3%, to $3.07; Northern Dynasty shares are up about 1%, to $10.55, and US Gold shares are up about 1.5%, to $6.77.

Newmont shares are up more than 2.5%, to $58.89; Barrick shares are up about 1.4%, to $48.99; Goldcorp shares are up about 1.5%, to $54.97; and Yamana shares are up more than 1.5%, to $13.32.

Paul Ausick

Both the SPDR Gold Trust (NYSE: GLD) and the iShares Gold Trust (NYSE: IAU) are within striking distance of 12-month highs. The gold mining ETFs, Market Vectors Gold Miners ETF (NYSE: GDX) and Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) have also come back a bit, though for the year-to-date both are off roughly -10%. Miners Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corp. (NYSE: ABX), Yamana Gold, Inc. (NYSE: AUY), and Goldcorp Inc. (NYSE: GG) are all up about 1% today, though Goldcorp is the only miner showing a gain (about 10%) for the year-to-date.

The inability of the Eurozone and the International Monetary Fund to solve the debt problems in Greece has led investors to worry about other Eurozone debtors. Italy is the latest country to be scrutinized and found to be on less firm ground than once thought.

While the jump in gold prices is not usually a good sign for the US dollar, and, at this time, not an especially good sign for the euro, it does bode well for gold miners which have not shared in the run-up of gold prices. Having broken through the $1,500/ounce level again, the wariness about European debt could keep the price there long enough to establish a new floor.

If that happens, then demand for gold will rise again from central banks and bullion buyers. There are also limits to what the gold miners can do to meet higher demand. Production growth is limited by the price of gold — lower prices mean less investment by miners in increased production. Of course as the price rises this limitation disappears, but then gold miners face rising production costs for labor and equipment.

Demand from India and China for gold to make jewelry and other items is expected to continue growing beyond its current level of about 60% of total production. Furthermore, China’s central bank holds less than 2% of its reserves in gold. The global central bank average is about 11%. If the People’s Bank of China decides to beef up its gold holdings, miners will see an immediate rise in gold prices and a demand for even more.

With the exception of Goldcorp, the other miners we’ve mentioned here have a forward P/E ratio of in the neighborhood of 10. Yamana’s price/book ratio is just 1.29, and the others are right around 2.

We looked at some smaller mining companies about a week ago and found very little uncovered value to recommend there.  That does not look to be the case with these bigger miners. And while these large miners are also trading below 52-week highers, the differentials range from -16% to -6%, a far cry from the junior miner differentials of about -60% to -35%.

Paul Ausick

We decided to screen the gold universe to find out which companies pay dividends and then which ones pay right “about” 1.0% and higher.  There are very few, but the search is as follows: Newmont Mining Corp. (NYSE: NEM); Gold Fields Ltd. (NYSE: GFI); Yamana Gold Inc. (NYSE: AUY); Royal Gold, Inc. (NASDAQ: RGLD); and The Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN).

Newmont Mining Corp. (NYSE: NEM) has one of the better cost structures out there and its jump in the 2010 payout to $0.15 from $0.10 per quarter has made a difference.  Its dividend had been at $0.10 since 2004.  The current dividend at $54.85 is roughly 1.1% and the 52-week trading range is $48.20 to $65.50.  Thomson Reuters has estimates for this Colorado-based operator at $5.07 EPS for 2011, so any gain to earnings would lend more support for future dividend hikes if it wanted to stand out from the crowd.

Gold Fields Ltd. (NYSE: GFI) is based in South Africa and it pays dividends semi-annually rather than quarterly to its ADR holders.  The financial reporting services count the yield above 1% but it is generally not a steady dividend and it has fluctuations to it.  Due to fluctuations and currency risks, we are skipping this as a “reliable 1% dividend” gold stock.

Yamana Gold Inc. (NYSE: AUY) is a Canadian-based gold producer with a $0.03 per quarter dividend. A potential problem we see is that this dividend was raised twice in 2010.  This new $0.12 annualized payout comes to 0.95% in a current yield and Thomson Reuters has estimates of $0.96 EPS for 2011.  If any earnings hit comes from its operations in Brazil, Argentina, Chile, Mexico or Colombia, then this near-1% yield may suffer.  At $12.70, its 52-week trading range is $9.16 to $13.13.

Royal Gold, Inc. (NASDAQ: RGLD) just declared its second $0.11 quarterly dividend this morning and the $0.48 annual rate generates a yield of 0.97% with a $49.15 share price.  Its 52-week trading range is $42.15 to $55.22 and Thomson Reuters has annual June-2011 estimates of $1.29 EPS.  This Colorado-based company is a royalty play rather than a mining play and it owns many royalty interests in the U.S., South America, Australia, Russia, and elsewhere.

The Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN) is a very different beast in the world of gold with a very high dividend.  It is a closed-end fund.  So far it has been able to maintain a $0.14 monthly payout to holders and that comes to an 8.9% yield to holders based upon an $18.80 price.  Keep in mind that it is not 100% gold, and its strategy to generate income is enhanced by writing covered calls.  The 52-week trading range is $14.86 to $19.77.  This is not a perfect gold play, but with a yield like this it may get a pass compared to others.

As you can tell, getting to even a 1% yield is a challenge in most gold mining stocks.  The underlying value here generally revolves around the price of gold.  Live by the golden sword and die by the golden sword.

JON C. OGG

SPDR Gold Shares (NYSE: GLD) are up about 35% from their lows over the last year, but the leveraged nature of gold mining returns at higher prices has led Market Vectors Gold Miners ETF (NYSE: GDX) to be up more than 50% from yearly lows and helped Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) rise above 90% from its lows earlier in the year.  We are tracking some underperformance from the likes of Yamana Gold, Inc. (NYSE: AUY), Kinross Gold Corporation (NYSE: KGC), Royal Gold, Inc. (NASDAQ: RGLD), Gammon Gold, Inc. (NYSE: GRS), Rubicon Minerals Corporation (AMEX: RBY), Northgate Minerals Corp. (AMEX: NXG), Exeter Resource Corporation (AMEX: XRA) and DRDGOLD Ltd. (NASDAQ: DROOY).

Yamana Gold, Inc. (NYSE: AUY) is one of the largest gold producers but it is an underperformer.  At $11.82 its shares are up about 28% from yearly lows and still down 18% from its highs.  With an $8.7 billion market cap, a September disclosure showed that the Canada-based Latin American mine operator will spend $650 million in project expansion from into early 2013 to boost production by more than 50% during high gold prices.  Analysts have an average target of about $14.30 per Thomson Reuters.

Kinross Gold Corporation (NYSE: KGC) is back above $19.00 but is still lagging gold and up only 28% from its yearly lows and still is down almost 15% from its highs.  The $13 billion market cap is also a larger player with a lagging share price.  The stock was punished when it acquired Red Back Mining, but now production is expected to grow from 2.6 to 2.7 million gold equivalent ounces in 2010 to 4.5 to 4.9 million gold equivalent ounces in 2015 as a result.  Thomson Reuters lists an average analyst price target of $22.29.

Royal Gold, Inc. (NASDAQ: RGLD) has not sold off from highs so much but its performance has been like gold.  The gold royalty trust is still close to $53.00, and that translates to 28% from its lows and down less than 6% from its yearly highs.  Maybe it is dilution from offerings in the past or maybe it is a perceived future earnings quality that worries investors.  Our take is that it has just underperformed and its $2.8 billion market cap and only about 20 employees on last look might make investors consider it more of a fund than a hands-on operator.  While both concerns are true, Royal Gold often has just as much leverage and upside over successful mining ventures.  This may boil down to nothing more than that it has just not rallied as much as peers as analysts on average have an average price target of $61.00.

Gammon Gold, Inc. (NYSE: GRS) is just under $7.00 with a market cap of just under $1 billion.  is trading up about 36% from its lows, but it is down nearly in half from its highs and that is a significant drop compared to almost all peers.  Analysts have an average target of $8.18 for the stock.  The most recent earnings may still have an overhang from a new credit facility despite its recent drill target updates.  The Canadian company operates mostly in Mexico.

Rubicon Minerals Corporation (AMEX: RBY) has a market cap of just under $900 million.  At $4.11 and is up 33% from its lows of the year, but the stock is still down over 21% from highs.  The junior miner has made several production updates in recent weeks.

Northgate Minerals Corp. (AMEX: NXG) is just under $3.00 per share, but it only up 28% from its lows and is still down about 18% from its highs.  After a big pop on Monday, its market cap is closer to $900 million.

Exeter Resource Corporation (AMEX: XRA) is also low-priced at $6.22, but the stock is up only about 18% from yearly lows and is down almost 34% from yearly highs.  The company is valued around $470 million and it had a $50 million capital raise in Canada in October.

DRDGOLD Ltd. (NASDAQ: DROOY) remains another gold laggard and at $4.97, its shares are up 26% from yearly lows but down about 37% from highs.  Its $190 million market cap makes it a smaller concern based in South Africa.  It is thin volume and has very little analyst presence for U.S. investors.  South African gold production drops in reports from earlier in the summer, as well as a June coverage initiation by Morgan Stanley at “overweight” followed by a September downgrade to “equal-weight” only added to the overhang.

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JON C. OGG

Our screen of our 40+ gold issues in our US-listed gold stocks universe brought up Barrick Gold Corporation (NYSE: ABX), Gammon Gold, Inc. (NYSE: GRS), Goldcorp Inc. (NYSE: GG), IAMGOLD Corp. (NYSE: IAG), Jaguar Mining Inc. (NYSE: JAG), Royal Gold, Inc. (NASDAQ: RGLD), and Yamana Gold, Inc. (NYSE: AUY).  This is stating the obvious, but investors who prefer not to take on individual company risk can also look at Market Vectors Gold Miners ETF (NYSE: GDX) and then the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ).

Our cut-off in the screening process was those which have markets caps of close to $500 million and higher, which are actively traded, and preferably which have 5 or more analysts that cover the shares.  There are many caveats to consider above and beyond regular stock picking targets when it comes to gold.  Most are foreign or are making their money from foreign operations, there are labor issues and safety issues that can come up, geopolitics is mining risk because companies generally have to work in many hostile or unfriendly local environments.  There is also an ongoing currency risk due to international operations, although gold is at least generally translated in dollars.

The greatest risk is also the easiest to guess and the hardest to pick: the price of gold today versus a year and two years out.  If gold rises to $2,000 per ounce as Jim Rogers suggests, then it probably won’t matter about stock picking skills for undervalued or underperforming names.  Conversely, if gold ends up being a huge asset bubble and rapidly falls to $1,000.00 per ounce then the effort of stock picking here is unlikely to make a difference as well.  Rising tides lift all ships, receding tides beach all ships.

Barrick Gold Corporation (NYSE: ABX) is the biggest by market cap in our universe and it seems odd that the biggest is also still at a discount when the gold market is still on so much fire for investors.  At $47.32, its 52-week trading range is $33.65 to $48.02.  With a $46.6 billion market cap, this Canadian giant is listed as having an average price target of $55.13.  The implied upside here is about 16% and we might have left this off, except that this would imply a whopping additional $7.5+ billion in market cap.

Gammon Gold, Inc. (NYSE: GRS) has also been in trouble, partly over a mine strike and shares are trading at $6.99 versus a 52-week trading range of $5.09 to $12.63.  The consensus target is $8.34 on the stock, although that used to be higher.  The market cap here is $967 million and 7 analysts have price targets.  The implied percentage gain here is more than 19% if the target objective is hit.

Goldcorp Inc. (NYSE: GG) is the giant and at $44.09 it has a $32+ billion market cap.  Its 52-week trading range is also $32.84 to $47.41.  The Canadian-based international gold miner and producer has an average analyst price target of $52.32 from more than 15 analysts, but it is worth noting that there are some old leftover targets that have not updated (one is listed as being as low as $25.00).  The median target is $54.14, but the implied upside in the shares to $52.32 leaves more than 18% upside to the mean target (and 22% to the median target).

We wanted to see which gold stocks were lagging the gold ETF peers.  For starters, the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) at $34.14 is up 61% from its 52-week lows and is only down 1.95% from its 52-week highs.  The larger ETF via the Market Vectors Gold Miners ETF (NYSE: GDX) at $56.66 is up 43.5% from its 52-week lows but only off 0.16% from its 52-week highs.  Some of the laggards we are tracking are DRDGOLD Ltd. (NASDAQ: DROOY), Jaguar Mining Inc. (NYSE: JAG), Royal Gold, Inc. (NASDAQ: RGLD), Harmony Gold Mining Co. Ltd. (NYSE: HMY), Yamana Gold, Inc. (NYSE: AUY) and Kinross Gold Corporation (NYSE: KGC).  We also wanted to see how these compare to the SPDR Gold Shares (NYSE: GLD).  What is interesting is that the ‘laggard’ implication may not have much standing against the future.  We have given an update and outlook for each.

DRDGOLD Ltd. (NASDAQ: DROOY) is a perpetual low-priced stock at $5.31 versus a 52-week range of $3.92 to $8.05. It is up 35% from 52-week lows, making it the healthiest of the laggards in a measurement off of 52-week lows.  Shares are also down over 35% from its 52-week highs, making it the second largest off’ from highs.  South African gold production drops in reports from earlier in the summer, as well as a June coverage initiation by Morgan Stanley at “overweight” followed by a September downgrade to “equal-weight” only added to the overhang.  The last annual dividend gave it a 1.2% yield, but that is still an unknown for 2010.

Jaguar Mining Inc. (NYSE: JAG) is a New Hampshire-based company, but its gold mining interests are just about all in Brazil.  At $6.58, its shares are up only 16% from its 52-week lows and they are the worst on the ‘off 52-week highs’ with shares down more than 50% from the $14.01 highs.  The stock was already lower in August because of mining problems, but its August earnings report was the death-blow.  After that, analysts threw in the towel and many downgrades came.  Thomson Reuters still has an average target above $12.00, although that appears to conflict with the non-U.S. research, so that is something we will leave as a wild card.

Royal Gold, Inc. (NASDAQ: RGLD) has been a long-standing anomaly in gold investing. This Colorado-based gold investment has very few employees (approximately 20), yet has a $2.8 billion market cap.  The difference between it and traditional mining stocks is that Royal Gold acquires and operates precious metals royalties rather than acting as an operator of mining operations.  At $50.76, it is up ‘only’ 23% from the 52-week low of $41.19 and it is also down ‘only’ 9.3% from the 52-week high of $55.96.  If you look at the chart here, there is nothing broken about it.  It has risen steadily over the last 5-years and Thomson Reuters has average price targets north of $58.00.  There is nothing wrong with this one on the surface.  It just has not performed as well as many of the other gold stocks.

Harmony Gold Mining Co. Ltd. (NYSE: HMY) is another South African miner, and its lack of performance may be nothing more than just lower volatility compared to many peers.  At $11.55, it is up 32% from its 52-week low and is down only 4.15% from its 52-week high.  Operations are mainly in South Africa, New Guinea, and Australia.  With a market cap of right at $5 billion.  The company has recently advised that a search and rescue team recovered one body of its two employees missing after a seismically-induced rockfall that took place at the East Shaft of its Bambanani Mine. Thomson Reuters lists an average analyst price target at $12.27, so the lack of performance here may represent nothing more than just being fairly valued.

Yamana Gold, Inc. (NYSE: AUY) at $11.45 is yolked between its 52-week high and low of $9.16 to $14.37.  That means it is up 25% from lows and down 20% from highs.  It has a low yield at 0.7% and is large with a $8.5 billion market cap.  A recent disclosure is that the Canada-based Latin American mine operator will spend $650 million to expand projects in the next two and a half years with a goal of raising production by more than 50% as it expects gold prices to remain high.  The goal is to raise annual production to 1.7 million ounces of gold by the end of 2013. Analysts have an average target of about $14.00 per Thomson Reuters, and the lowest target appears to be $11.50 of those with targets on the stock.

Kinross Gold Corporation (NYSE: KGC) at $19.00 is also close to equally yolked between high and low, with shares up 28% from the 52-week low and down 20% from the 52-week high.  It is also proof that there is no discrimination on size in the under-performers with a $13+ billion market cap.  After a recent completion of its Red Back Mining deal, the company set a goal where production is expected to grow from the then-current combined forecast of 2.6 to 2.7 million gold equivalent ounces in 2010 to 4.5 to 4.9 million gold equivalent ounces in 2015.  This Canada-based producer was punished hard for its $7.1 billion acquisition of Red Back.  Just keep in mind that it has also bounced from $15 to $19, and that has now broken its downward chart pattern.  This laggard may no longer be a true laggard.

So how do all of these compare to SPDR Gold Shares (NYSE: GLD) as the main gold trust ETF?  At $127.85, it has a 52-week trading range of $96.95 to $128.03.  Each day is a new high it feels here and the ETF is up 34.35% from its 52-week low.  As far as how it ranks in assets, it is larger than most central bank holdings: 1,305 tonnes, 41.979 million ounces, or $54.303 billion in total assets.

These stocks were not listed in any particular order, this was just the order of the names in our portfolio screen set of our own gold universe earlier in 2010.

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JON C. OGG

SPDR Gold Trust, a major buyer of gold bullion, should be performing best and it is. Gold is still gold, and having a basement full of the stuff is just good insurance, especially as markets continue to worry about Europe and the slow-moving global economic recovery.

The two mining ETFs are actually performing better than any of the individual stocks in their holdings. That is not easy to explain other than to say that investors’ expectations may be higher than the mining companies ability to perform. Adding weight for the price of gold keeps these ETFs higher than expected.

For the big miners, their ability to keep production costs is the key to profitability. Another important factor in profitability is good currency hedging. Any bets on the euro have certainly cost these companies money in the current quarter. Because gold prices have risen steadily for nearly 10 years, most gold miners no longer hedge their production.

Kinross reported a cost per ounce of $461, up 10% from a year ago. The company also expects costs of $460-$490/ounce for the full year. The company’s average realized price was $1,065/ounce.

Among the junior miners, DRDGold reported cash operating costs of 221,400 South African Rand/kilo. At at an approximate conversion rate of 8 Rand/dollar and 35.2 ounces/kilo, that comes to an operating cost of about $786/ounce. The company’s average realized price, again converting from Rand, was about $960/ounce. The comparison with Kinross’s costs and prices says a lot about the very tough environment a junior miner faces.

Mining is a high-cost, capital-intensive business and the big differential between bullion prices and mining shares should not come as a surprise. The really bad news for miners will come when gold prices start to decline, which some analysts think could happen by the end of the year.

One sign to watch for is the miners’ hedging activity. If the large miners begin to hedge their future production that is a sure sign that they believe that prices are headed down.  Interest rates are also being kept artificially very low as he economic recovery still has risks.  The price of gold also depends on how well the global economic recovery proceeds, and especially on growth in China. If the Chinese economy continues to grow without added inflation and overheating, gold prices could fall sharply.

Gold miners face some hard choices in the next few months, and the junior miners are in a particularly difficult spot.  Many of their shares are testament to that notion.

Paul Ausick

Jon C. Ogg
July 27, 2009