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Tuesday, October 06, 2009
Gold Hits All-Time High as Dollar Slides
Reuters
Gold stocks rose more than 5 percent Tuesday and options activity in the issues soared, as the price of the metal climbed to a record high above $1,040 an ounce and sparked predictions of further gains.
Top gold miners Barrick Gold Corp and Newmont Mining rose 4 percent and 7 percent respectively, while small players such as Eldorado Gold, up 10 percent, fared even better.
The S&P/TSX global gold index, which tracks mid- to large-sized gold miners in several markets, rose 5.3 percent, as analysts predicted the metal's breach of its previous record suggested a continued run.
"We blew through a few technical levels around $1,030 (an ounce)," said Haytham Hodaly, a Vancouver-based analyst at Salman Partners.
"We're thinking it could go closer to $1,100."
Traditionally a safe haven in times of turmoil, gold largely avoided the precipitous plunge of other resource prices last year, although it has struggled to regain the high of $1,030.80 it hit in March 2008.
Gold bulls see runaway inflation and U.S. dollar weakness sparking a stampede into the metal, and while signs of inflation have yet to materialize, the metal benefited from a weakening greenback Tuesday.
Gold stocks, meanwhile, have rebounded from the market selloff that left no sector unscathed in late 2008.
Miners have raised billions in equity financings this year -- most notably Barrick -- and the TSX gold index hit a 14-month high in late September.
STOCKS LAG THE METAL
However, gold equities have not kept up with the run of the metal, and are still about 10 percent below their record levels -- as measured by the TSX gold index -- hit in March 2008.
Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier in Toronto, said the stocks have suffered from the emergence of other investment vehicles centered on gold, as well as concerns about the lasting power of the recent rally.
"I think there's still a bit of doubt that that $1,000 mark is going to hold," he said.
South Africa's AngloGold Ashanti gained 8.7 percent on the New York Stock Exchange, while Goldcorp finished the session up 4.8 percent in Toronto.
Top movers in Toronto were Aurizon Mines and Semafo Inc ,up 12.9 percent and 10.4 percent.
Salman's Hodaly said that, at current valuations, shares of gold producers should move roughly in line with the metal.
Analyst Tony Lesiak of Genuity Capital Markets agreed, saying stocks were neither particularly overpriced nor underpriced at current gold levels.
"They're not extreme. They're well within the range that they've traded in off the forward curve for the last few years," Lesiak said.
Options activity was strong in several names, with Yamana Gold, Gold Fields and Harmony Gold showing particularly strong call activity.
An equity call option lets an investor buy the company's shares at a fixed price within a specified time period.
In Yamana, one investor appeared to be betting on at least a further 10 percent gain, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group.
Shares of Toronto-based Yamana gained 7.6 percent Tuesday.
FOX Translator
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Whether you're walking a tightrope or scribbling in your checkbook, balance is a good thing. And, one of the best ways to evaluate a company is to glance at its balance sheet to see what it owns with what it owes.
The balance sheet is a paragon of simplicity and is made up of three components: assets (the stuff it owns), liabilities (the money it owes), and shareholders' equity (the company's value to its shareholders).
Assets take two forms: short-term (or current) assets and long-term assets. Under short-term, there¿s good ol' hard cash. Then, there¿s something called "cash equivalents," which are assets like short-term bonds that can be sold so quickly, they might as well be cash. There you factor in inventory, which (if you're a reasonably competent business owner) you can sell to customers in return for--you guessed it--cash. (The raw materials a company owns to make that inventory also falls under this category.)
Long-term assets are things that are harder to convert into cash. (Think real estate and equipment.) Long-term assets depreciate, meaning they lose some value over time. Also under the long-term category are what's called intangible assets: things like patents and brands, that are important, but hard to quantify. Accountants earn their stripes figuring out the real overall value of these assets.
Once you know your assets, it's time for liabilities. As with assets, liabilities are separated into short-term or current, and long-term. Current liabilities are what a company owes in that year: Things like payments to employees or accounts payable to suppliers. Long-term liabilities are debts paid over several years.
Shareholders' equity is determined by subtracting the liabilities from the assets. That number represents the value of the company after all its bills are paid.
Obviously, investors should pay close attention to balance sheets. Spikes in the amount of debt carried, or a reduction in shareholders' equity, are usually red flags.
