Investors Seek Safety in Gold Mining Stocks
Seeking refuge from a shaky bond market and troubled dollar, investors are piling back into the gold sector, driving shares in pure-gold-play mining stocks Friday to their highest levels in more than six years.
The American Stock Exchange “gold bugs” index -- comprising mining companies that sell gold only as it is mined, instead of preselling to lock in future prices with forwards and options -- surged 5% to its highest level since March 1997. Fourteen of the index’s 15 stocks rose.
The Philadelphia Stock Exchange’s more inclusive index of gold and silver mining shares also moved higher but lagged behind the non-hedging gold stocks, which some small investors and portfolio managers see as a more direct indicator of the direction of gold prices.
Newmont Mining Corp., the world’s largest gold company and a member of both indexes, hit a 52-week high Friday, rising $1.38 to $38.33 on the New York Stock Exchange, continuing to capitalize on an anti-hedging policy.
“The stocks are telling you that gold should do something,” said Caesar Bryan, manager of the $210-million Gabelli Gold Fund. “People buying the equities clearly think that the gold price is probably going to make some progress.”
Gold futures gained $3.80 to $356.30 an ounce in New York trading, where the precious metal is up 11% from its April 7 closing low.
The gold bugs index is up 22% this year, bettering the 12% gain in the Philadelphia mining index and the 11% gain in the benchmark Standard & Poor’s 500.
The gold bugs index has gained attention this year as mining firms have rethought longtime hedging programs under pressure from investors angered at companies that over-hedged and could not benefit from rallying bullion prices.
As it turns out, mining companies last year became net buyers of gold as they unwound forward sales. Gold enthusiasts had complained for years that hedging was depressing gold prices.
This contributed to the about-face in sentiment since 2001. In the 1990s, gold looked like a relic of the “old economy” and its price hit a 20-year low of $253 an ounce in 1999 before the stock market boom went bust.
