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Gold Stocks Haven't Even Begun to Soar

Commodities / Gold & Silver Stocks May 22, 2009 - 10:16 AM GMT

By: DailyWealth

Commodities

Steve Sjuggerud writes: Yesterday, I spent an hour and a half with two of the most experienced gold investors on the planet...


It was a bit by accident... I was at a private two-day meeting on the Eastern Shore of Maryland, and I needed to leave early to get to the Baltimore airport. Both Van Simmons (my good friend and a legend in the coin world) and ace gold-stock analyst John Doody needed to be at the airport too, so they hitched a ride with me.

At the meeting, John had told us gold stocks will "surprise on the upside" this year. In short, if you don't own gold stocks now, you need to buy. Let me share John's reasons why...

The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.

Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.

Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.

So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.

John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.

In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.

Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.

So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.

If you haven't bought gold stocks yet, you should. And if you want to get the complete picture on gold stocks, then you should get to know John Doody.

Good investing,

Steve

P.S. John has written Gold Stock Analyst for over a dozen years. He delivers the objective truth every month, covering 75 precious metals stocks. His "Top Ten" list has an incredible track record of success. For more on John's letter, click here.

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The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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