Gold Fell Hard, What 's Next?

07/25/2013 12:00 pm EST


Jim Jubak

Founder and Editor,

Why did gold fall yesterday after rallying to a one-month high? MoneyShow's Jim Jubak, also of Jubak's Picks, details why he feels gold took such a nose-dive yesterday, and what may be in store down the road.

So much for the gold rally.

Gold itself fell yesterday after rallying to a one-month high. Spot gold dropped 2.5% to $1315 an ounce.

Gold mining stocks, which have themselves rallied strongly for almost a month, fell even harder. Goldcorp (GG), for example, is down 5.9% as of 2:45 pm, New York time. This plunge comes after the stock rallied 33.4% from a June 26 low at $22.35 to $29.81 at the close on July 23.

I think you can mark down the drop in the price of gold yesterday to profit taking after a strong move, on a combination of a jump in the US dollar and reports showing that new home sales increased in June to a five-year high.

The plunge in the shares of gold mining stocks is a result of those factors-and something more. Today marks the start of a week of earnings reports from gold mining companies-and those reports are expected to include big write-downs for cancelled or delayed mining projects, and on lower prices for the value of the gold in mining company reserves. Goldcorp kicks off the parade this morning before the open of the New York markets. Barrick Gold (ABX) ends the big bulge in earnings reports from the sector on August, 1.

Besides yesterday's rout in shares of Goldcorp, the sector includes a 5.31% drop in Yamana Gold (AUY), a 5.68% fall in Newmont Mining (NEM), a 5.91% tumble in Barrick Gold, and a 5.29% decline in Kinross Gold (KGC).

Yamana Gold and Goldcorp are members of my Jubak's Picks.

From this perspective, the late June lows in this sector look like attractive prices for buying gold mining stocks-should the stocks revisit that territory. I wouldn't be a buyer, however, until earnings reports tell us how big the write-downs will be, and whether or not we can expect more write-downs next quarter. (The best bad news would be to see kitchen sink quarters from some miners-in which they write down everything including the kitchen sink.)

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Yamana Gold as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund's portfolio here.

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