Gold Stocks (GDX) Tumble, 2008 Redux Ahead

GOLD STOCKS NEWS – Gold stocks tumbled Thursday as the Market Vectors Gold Miners ETF (GDX) fell $1.35, or 2.3%, to $57.95 per share. The sell-off in gold stocks and the GDX was fueled by a plunge in gold futures after the CME Group raised margin requirements on the COMEX. Gold futures reached a new all-time record high of $1,817.60 per ounce, but plummeted to $1,757.10 as of 10:45am ET. The S&P/TSX Global Gold Index, Canada’s leading gold stocks composite, dove 3.0% alongside the GDX.

Gold stocks and the GDX have experienced significant volatility in recent months – in concert with the broader equity markets. Escalating concerns over the status of the U.S. and European economies has led to widespread liquidation across many asset classes. However, the gold stocks sector has significantly outperformed the broader market indices – with the GDX falling just 6.8% since April 30, compared to a 15.9% drop for the S&P 500 Index.

The broader market weakness has led to many calls for a redux of 2008, when all sectors of the equity markets – including gold stocks – came under heavy selling pressure. Dundee Securities discussed the outlook for gold stocks in light of these developments in a recent report to clients. “While we wish it were otherwise, we can’t help but draw parallels between the markets of today and those at the beginning of the financial crisis of 2008,” analyst Paul Burchell wrote.

Burchell noted that although gold stocks and the GDX plunged during the peak of the crisis in October 2008, the sector quickly rebounded. “This time around, we haven’t seen a vicious sell-off in gold stocks – possibly due to the fact that as a group gold equities are relatively undervalued as compared to three years ago,” he continued.

Looking ahead, the Dundee Securities analyst contended that “We remain bullish on the longer term prospects for the yellow metal and we continue to recommend investors look to the large and intermediate gold producers as a hedge against what could be volatile markets.”

As for smaller gold stocks, the firm wrote that “We remain bullish on the longer-term prospects for the smaller producers and developers/explorers; however, risk averse markets generally shy away from these inherently riskier stocks and they could underperform their larger brethren should uncertainty continue to be a dominant theme.”

Notable gold stocks moving lower alongside the GDX on Thursday included Barrick Gold (ABX), which fell 2.1% to $48.62 per share. Goldcorp (GG) slid 3.0% to $49.02 per share, while Randgold Resources (GOLD) retreated 2.4% to $101.36 per share. One name that bucked the trend of lower gold stocks was Newmont Mining (NEM), which climbed 1.2% to $56.50 per share.