Gold Miners Poised for Big Rebound

03/12/2014 9:00 am EST

Focus: COMMODITIES

Jim Powell

Principal Analyst, Global Changes & Opportunities

When gold shoots up, but investors are uncertain if the high prices will last, gold mining stocks often lag; mining shares can also plunge more rapidly than bullion prices when the latter are sinking, explains Jim Powell, editor of Global Changes & Opportunities Report.

At some point, however, gold producers can become so undervalued, compared to the price of the metal, that they make catch-up moves that can be breathtaking. That’s especially true when investors think gold has hit bottom and is likely to rebound.

That’s the situation we have today, and I think a big rebound is on the way. In fact, I believe the mining recovery is already starting and I think it’s time to do some buying.

Goldcorp (GG) is a gold mining pure-play that is well-suited for somewhat more aggressive investors who want a tighter focus than GDX offers. The company is the second largest producer after Barrick Gold (ABX) and is considered by many analysts to be the best in its industry.

Goldcorp has a great track record for taking care of its shareholders. Since its founding in 1994, the stock has gone up nearly 1,600%, versus 340% for the Dow and 240% for gold. The company also pays a 2.20% dividend that it did not cut during the gold plunge—as most of its competitors were forced to do.

Goldcorp is an efficient producer. However, several of the company’s ten principal mines can’t be operated economically when the price of gold approaches the $1,000 level.

As a result, the company suffered losses during the 2013 gold sell-off. If gold remains at its current higher price, profits should return. If the price rises further, Goldcorp will do even better.

Meanwhile, Market Vectors Gold Miners ETF (GDX) is the most diversified and conservative way to invest in a gold producers' rebound.

In addition to holding Goldcorp and Barrick Gold, the fund tracks the performance of Newmont Mining (NEM), Newcrest Mining (NCMGY), AngloGold Ashanti (AU), and several other industry leaders.

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