Gold Stocks (GDX) Turn Lower, but Remain “Quite Attractive”

GOLD STOCKS NEWS – Gold stocks turned lower Friday as the Market Vectors Gold Miners ETF (GDX) fell 0.7% to $60.64 per share.  This morning’s weakness in gold stocks was fueled by a drop in gold bullion, which lost $3.36 to $1,771.98 initially following release of Fed Chairman Bernanke’s speech in Jackson Hole, Wyoming in which he did not specifically allude to a third round of quantitative easing (QE3).  The S&P/TSX Global Gold Index, Canada’s leading composite of gold stocks, retreated 0.6% to 407.50 alongside the GDX.

While gold futures tumbled from a new all-time high of $1,917.90 to as low as $1,705.40 this week, gold stocks have outperformed.  The GDX has declined just 1.0% this week, compared to a 4.3% decline for the yellow metal.

Commenting on the outlook for gold stocks, Dundee Securities analyst Paul Burchell reiterated his bullish forecasts for the sector wrote in a note to clients on Friday.  “Gold producers continue to produce while recognizing monster margins and while we’re not surprised by the recent cooling in the gold price, a little cream has been taken off the top,” Burchell contended.  “Can gold miners survive on gold prices below current levels? Our models yield a resounding ‘yes’(!) and hence we remain bullish on gold equities.”

The Dundee analyst went on to say that the stocks of “established gold producers with operating mines and strong balance sheets are well-positioned to outperform.  At the same time, many gold equities continue to demonstrate discounted valuations, likely due to investor reluctance to accept sustained elevated gold prices.  Even if we see further weakness in the gold price (vs. its recent high), we expect the realized margins for these companies to remain quite attractive.

Based on his analysis, Burchell recommended six Buy-rated gold stocks that investors should consider, along with the following price targets:

Barrick Gold (ABX.TSX) – C$60.00 price target

Agnico-Eagle Mines (AEM.TSX) – C$77.00

Alamos Gold (AGI.TSX) – C$23.00

AuRico Gold (AUQ.TSX) –C$16.00

Osisko Mining (OSK.TSX) – C$19.50

Perseus Mining (PRU.TSX) – C$5.50

In morning trading, the U.S. listed ADR’s of ABX, AEM, and AUQ – which are each components of the GDX – slid 0.8%, 1.2%, and 1.0%, respectively.

As for the other three gold stocks highlighted by Dundee Securities, AGI.TSX, OSK.TSX, and PRU.TSX fell 0.7%, 0.9%, and 1.2%, respectively.

Other notable gold stocks moving lower included GDX components Gold Fields (GFI), Kinross Gold (KGC), and Newmont Mining (NEM).  GFI, KGC, and NEM dropped 1.0%, 0.4%, and 0.9%, respectively.