A Surprising Gold Trend That You Can Still Profit From…
If you think you’ve missed the latest round of profits in gold, you’re wrong.
There’s one not-so-hidden gold sector that’s still set to boom.
Since the beginning of the year, while gold prices have rallied nearly 20%, well-run gold miners have barely eked out a gain. In some cases, they’re actually down on the year!
If you’re like me, you know this is a trend that can’t continue.
So gold is soaring and gold producers are lagging — indeed, something’s got to give.
In fact, we’ve already seen a resource opportunity just like this one earlier this year in the oil market. If you recall oil prices jumped up over $115, but there seemed to be a pretty strong lag between oil prices and the price of large domestic oil producers. Yep, even though the price of the stuff that they produce was rising, the market didn’t add that in to the valuation.
That’s fine by me. I love a solid, simple market opportunity.
As each day passed, the phenomenon amazed me more and more. Simply because every day that oil prices stayed above $100 a barrel I knew domestic oil producers were making a killing — indeed, their first- and second-quarter profits told the tale.
Today we’ve got the same situation shaping up in the gold market.
With gold prices rocketing every day, it’s only a matter of time before the cash starts to pile up for gold producers. Literally with each calendar day, you can assume producers — with gold production costs around $500 — are raking in cash.
Remember, for all that we talk about rising gold prices around here, this is still unexpected cash for gold producers. You and I know that gold is headed higher, but really, any normal market watcher or analyst would be insane to have counted on gold prices being above $1,600 in August 2011.
Good grief, gold prices were just $1,200 a year ago!
But no matter which way we got here — government debt, increased money supply, metal scarcity, global demand — the fact remains that each passing day large, stable producers are adding to their books… way more than the market is giving them credit for.
To me, this situation is pretty simple: Find the gold, dig the gold, sell the gold. Right now, large producers are increasing reserves and costs are holding steady around $500, which means margins and cash flow are set to increase.
And frankly, I don’t even have to go out on a limb to say these producers stand to rise 20% by the end of the year.
Better yet, even if prices flat line or drop down to $1,500 an ounce, these producers are still set to make huge profits. Heck, if you assume they pull 600,000 ounces out of the ground, with gold prices where they are today, producers are making $240 million more per quarter than they were a year ago. I’m no pencil pusher, but that’s a huge number.
My suggestion for you is to check out large low-cost producers. Some of the big players include Barrick Gold Corp. (NYSE: ABX), Goldcorp Inc. (NYSE: GG) and Newmont Mining Corp. (NYSE: NEM).
What do I mean by low cost? Here’s a look at each company’s 2010 actual cost per ounce…
Even with slightly increased costs expected for 2011 (for example Goldcorp’s guidance is around $475—500 cost per ounce), these companies are still set to profit as much as $1,100 per ounce. Multiply that by the ounces produced per quarter and we’re talking some serious cash.
While Wall Street naps on these producers, now’s your chance to pick up a few shares. I wouldn’t be at all surprised to see an easy 20% gain by the end of the year.
Keep your boots muddy,
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