Gold Stocks Surge, GDX Turns Positive Year-to-Date

GOLD STOCKS NEWS – Gold stocks surged higher Monday, as the Market Vectors Gold Miners ETF (GDX) advanced $2.23, or 3.6%, to $63.49 per share.  The rally in gold stocks and the GDX was fueled by another record-setting day for gold futures, which reached a new all-time high of $1,898.60 per ounce in overnight trading.  The S&P/TSX Global Gold Index, Canada’s leading gold stocks composite, climbed 3.2% alongside the GDX.

With today’s strength in gold stocks, the GDX turned positive on a year-to-date basis for the first time since April 29.  However, gold stocks as a group have continued to substantially lag the yellow metal this year – evidenced by the GDX’s 3.0% rise since December 31, 2010 – versus a 33.6% gain for gold bullion.

In addition to the underperformance of gold stocks relative to gold itself, the GDX has not confirmed the new high in gold futures this month.  The gold stocks ETF remains 1.8% below its all-time high of $64.62, which the GDX reached on December 2, 2010 when the yellow metal was trading approximately 25% lower at $1,425 per ounce.

From a technical perspective, the non-confirmation by the GDX is a worrisome sign and could lead to shorter-term weakness in gold stocks.  However, this situation has transpired on numerous occasions in recent years, only to see the gold stocks ETF maintain its uptrend over the longer-term.

Given that most gold stocks have recently announced their second quarter earnings reports, news in the sector has been relatively light in recent days.  However, one gold stock in the news Monday was GDX component Eldorado Gold (ELD.TSX, NYSE: EGO).

Following Eldorado Gold’s announcement last week of results of its Kisladag expansion study in Turkey, shares of ELD.TSX were downgraded by TD Securities analyst Steven Green to “Buy” from “Action Buy List.”  Green also lowered his price target on Eldorado from C$23.00 to C$24.00 per share.

The downgrade was based largely on two key factors: life-of-mine sustaining capital expenditures of $900 million was “well above” TD’s estimate of $375 million, and the gold stock’s recent share price appreciation – ELD.TSX has risen 27% since TD upgraded it in March of this year.

Although TD downgraded Eldorado, it noted that the company “continues to have a strong outlook, with one of the best growth forecast profiles amongst its large cap-peers with industry leading gross margins.”  On Monday, ELD.TSX shrugged off the downgrade and rose in concert with the gold stocks sector, by 1.9% to C$19.58 per share.

Other notable gold stocks posting gains this morning included GDX components Harmony Gold (HMY), Newmont Mining (NEM), and Royal Gold (RGLD).  HMY, NEM, and RGLD were three of the top performing large-cap gold stocks today – with gains of 6.2%, 4.3%, and 3.6%, respectively.