- The majority of gold mining stocks’ prices fell by about 10% over the last month.
- In the meantime, the gold price is down just 1%.
- Matt Badiali explains why the downturn is a can’t-miss opportunity.
Shares of gold miners fell double digits over the past couple of months. As you’ll see, that’s an overreaction.
Now is the time to buy.
You see, there are about 58 large gold and silver producers listed on the U.S. and Canadian stock exchanges. Of these companies, about 80% of them increased in share price over the last year.
I expected that, since the gold price rose 25% over that same period.
However, 86% of those stocks fell in price over the last month.
The average fall was 10%, while the gold price fell just 1% over that period.
Even the VanEck Vectors Gold Miners exchange-traded fund (NYSE: GDX) fell over 6% in the last month. You can see what I mean in the chart below:
As you can see, the exchange-traded fund (ETF) fell 14% from its high in September. The gold price fell 4%.
The drop in gold miners share price is an overreaction. Investors will come flocking back as these mining companies report strong earnings this quarter.
Earnings Reports: Gold Stocks Will Bounce Back
Today, giant gold miner Newmont Goldcorp trades for roughly 18.6 times earnings. That’s kind of expensive for a gold miner.
That measure uses the last 12 months of earnings — it’s looking backward. It doesn’t take into account the high gold price of the third quarter.
We have to turn to the expert forecasts to get a real picture of the valuation of these companies.
If we do use the forecasts, Newmont’s current price looks cheap. The Bloomberg estimate is actually 7.4 times earnings, which means the analysts at Bloomberg think Newmont is going to put up some strong third- and fourth-quarter earnings.
And that’s reasonable to expect. See, the gold price hit a six-year high in September, at $1,557 per ounce.
That’s its highest price since 2013. Based on those strong gold prices, gold miners should see excellent earnings.
And forecasts for the gold price continue to be strong.
We could easily see these companies retest their 52-week highs by the end of the year. That would be a 16% gain for GDX in just a couple months.
In addition, there are strong economic forces that should push the gold price higher yet.
The Federal Reserve continues to cut U.S. interest rates. Lower interest rates weaken the U.S. dollar, which drives up the price of commodities such as gold.
With gold’s rosy outlook, this downturn in gold stocks looks like an opportunity.
On August 5, I recommended the VanEck Vectors Gold Miners ETF (NYSE: GDX) to get in on the gold rally. The fund gives you exposure to leading companies in the gold mining sector — and it’s still a good bet to profit from the rally.
Editor, Real Wealth Strategist
P.S. In my Real Wealth Strategist newsletter, we have several great gold mining recommendations. They will outperform even the best ETFs. Click here to learn more.