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

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

Burger King Holdings Inc. (NYSE: BKC) Cut to Neutral at Piper Jaffray.
Collective Brands, Inc. (NYSE: PSS) Cut to Neutral at Susquehanna.
DRDGOLD Ltd. (NASDAQ: DROOY) Cut to Equal-Weight at Morgan Stanley.
Gold Fields Limited (NYSE: GFI) Raised to Overweight at Morgan Stanley.
K-Sea Transportation Partners L.P. (NYSE: KSP) Raised to Hold at Stifel Nicolaus.
McAfee, Inc. (NYSE: MFE) Cut to Neutral (exit coverage yesterday) at Cowen (clean up call only).
Mitel Networks Corp. (NASDAQ: MITL) Cut to Neutral at JPMorgan.
MercadoLibre, Inc. (NASDAQ: MELI) Reiterated Overweight at Piper Jaffray.

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JON C. OGG

ABB Ltd. (NYSE: ABB) Raised to Buy at Goldman Sachs.
Allscripts-Misys Healthcare Solutions, Inc. (NASDAQ: MDRX) Raised to Overweight at Thomas Weisel.
Boston Scientific Corporation (NYSE: BSX) Maintained Sell at Goldman Sachs, but removed from Conviction Sell List.
DRDGold (NASDAQ: DROOY) Started as Overweight at Morgan Stanley.
Gold Fields Ltd. (NYSE: GFI) Started as Equal-weight at Morgan Stanley.
Harmony Gold Mining Co. (NYSE: HMY) Started as Overweight at Morgan Stanley.
MEMC Electronic Materials Inc. (NYSE: WFR) Cut to Buy from Strong Buy at S&P (late yesterday).
Peabody Energy (NYSE: BTU) Raised to Outperform at BMO Capital.
Potash Corp of Saskatchewan (NYSE: POT) Raised to Buy at UBS.
Pulte Homes (NYSE: PHM) Raised to Hold at Stifel Nicolaus.
Prudential plc (NYSE: PUK) Started as Buy at UBS.
STMicroelectronics NV (NYSE: STM) Started as Buy at Jefferies.
Wendy’s/Arby’s (NYSE: WEN) Raised to Buy at SunTrust.

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JON C. OGG

Sponsor: 5 best investments for 2010 – The next nine months represent a bold new era for investors.

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

• Immersion Corp. (Nasdaq: IMMR) is getting whacked down on an investigation into previous revenue transactions in its medical business.
• Speculative gold stocks DROOY, GOLD, AU, AUY were up on active interest with commodities.
• Spectrum Pharmaceuticals Inc. (Nasdaq: SPPI) Inc. shares were indicated lower after the company raised capital from institutional investors.
• AMAG Pharmaceuticals Inc. (Nasdaq: AMAG) is trading higher after the FDA approved the company’s Feraheme drug as an iron replacement therapy.
• Watch UBS AG (NYSE: UBS) and Credit Suisse (NYSE: CS) on Swiss-US tax issues may be closer to abating.
• Premarket Alert: Watch defense contractors on contract news (OSK, FRPT, GD, NAV)…
• Myriad Genetics (NASDAQ: MYGN) is getting destroyed on its deep revenue warning.

You can check each morning at VSInvestor.com for earlier pre-market indications in stocks on the move you might not have seen.

Jon C. Ogg

• Bear Stearns (BSC) raised to Buy at Merrill Lynch.
• Continental (CAL) raised to Outperform from Peer Perform at Bear Stearns.
• Dell (DELL) raised to Overweight from Neutral at JPMorgan.
• Express Scripts (ESRX) started as Buy at Deutsche Bank.
• Honeywell (HON) raised to Neutral at JPMorgan.
• Illumina (ILMN) raised to Overweight from Equal Weight at Lehman; raised to Buy at UBS.
• Nuance Communications (NUAN) raised to Buy from Hold at Citigroup.
• SPX Corp. (SPW) raised to Overweight at JPMorgan.
• STMicroelectronics (STM) downgraded to Neutral from Outperform.

DEUTSCHE BANK Downgrades Gold Stocks:

• Anglogold (AU) downgraded to Sell from Hold;
• DRDGOLD (DROOY) downgraded to Hold from Buy;
• Gold Fields (GFI) downgraded to Sell from Hold;
• Great Basin Gold (GBN) downgraded to Hold from Buy;
• Hamrmony Gold (HMY) downgraded to Sell from Hold.

Jon C. Ogg
January 11, 2008