The miners are leveraged to the price of gold, any rise in the POG usually results in a larger move in the stock prices of the miners
I cannot claim extensive knowledge on the subject, but my understanding is that the value of gold miners is correlated with the long term expected value of gold, rather than its spot value. Quite normal - Revenue stream of a miner is the mass of gold it sells times the spot prices at that future points of revenue.
Since they aren't doing that, one could conclude that the move in the POG is all dollar related and speculative in regards to dollar inflation
I agree with you. Since gold miners' shares have not appreciated like the price of gold, it means the market believes that the future price of gold will be significantly lower than its current spot price. And, as I explained above, it is the future price that counts.
As opposed to the idea that physical gold is appreciating against ALL currencies which would result in the miners becoming more valuable in every currency but especially dollars, since the dollar is falling relative to the other currencies.
I believe gold has been appreciating against all currencies.
I just quickly looked at two charts: EUR/USD and gold. Back of the envelope calculations suggest that between Dec'02-Feb'03, gold appreciated by 19% while USD lost 11% against EUR. Here, iirc, the "gold rush" was due to Iraq war uncertainties (and possibly Fed governor Bernanke's speech about the virtues of printing money). Then, Apr'03 to now, gold appreciated about 16%, while USD lost 10% against EUR (at current level of 1.1896 [whew!]).
Numbers are a little approximative, but you see the general picture. Gold has been appreciating against all currencies, not just the US. My take on why gold miners have not been following it to da moon is because the market believes this to be a transient price level, which will not significantly affect the DCF value of the miners.
Even if gold were moving against all currencies, if it were perceived as a short term thing, theoretically, it would not significantly move the share prices of gold miners.
On a more practical note - I am not as familiar with the gold industry, but I know that most commodity producers sell forward their production for the year. If that is true for the gold industry as well, this would also mean short term spikes in price may not even significantly affect miners' revenues in the short term. |
