GOLD PRICE NEWS - At $1,160 per ounce, thegold price is $102 lower than its $1,265 high posted just one month ago. The 8% correction in the gold price has served to sour investor sentiment toward the gold price. The result has been a broad-based liquidation of investments tied to the gold price, including gold ETFs such as the SPDR Gold Trust (GLD) and Central Fund of Canada (CEF) as well as gold mining stocks.As risk appetites have become stronger over the past month, the gold price has declined and more cyclical investments such as traditional stocks and commodities have appreciated. The S&P 500 is up 7.3% this month, rising in what has been a broad-based global rally. The sovereign debt crisis has been temporarily put on the back burner and risk aversion has dissipated. Long positions in gold futures on the COMEX are dropping precipitously and outflows from the world’s largest gold bullion ETF, GLD, which mirrors the gold price, have continued to rise.
In his weekly missive to subscribers, market commentator Steven Saville, of speculative-investor.com, highlighted the poor sentiment toward the gold price. Saville noted that “Despite the fact that gold is the only high-profile market to make a new all-time high over the past few months, objective indicators of sentiment suggest that the general level of gold-related optimism is relatively low. For example, the results of the latest Market Vane survey show that only about 60% of traders are bullish on gold. This bullish percentage is in the bottom quartile of the three-year range. For another example, the premiums to net asset value for Central Gold Trust (GTU) and Central Fund of Canada (CEF) dropped to 2.9% and 4.8%, respectively, on Tuesday 27th July, which is near their lows of the past two years.”
While the gold price has been weak in the first month of the third quarter, its move to all-time highs in the previous quarter was evident in Thursday morning’s earnings release from Barrick Gold (ABX), the world’s largest gold producer. Barrick earned an adjusted $0.77 per share in the second quarter, topping analyst expectations by $0.05 to $0.08. The Canadian-based gold producer reaffirmed its 2010 production guidance and raised its dividend by 20% to $0.12 per share. Barrick Gold capitalized on the record gold price, which averaged just under $1,200 per ounce in the quarter.
After the bell yesterday, Goldcorp (GG) and Agnico-Eagle Mines (AEM) each reported their second quarter operating results. Goldcorp (GG) announced second quarter earnings of 0.27 per share, missing analyst expectations by $0.02. Revenue increased 34% over the 2009 second quarter due to a strong gold price, although gold production of 609,500 ounces was slightly less than consensus forecasts. Goldcorp reaffirmed their 2010 guidance and noted that their world-class Penasquito mine was on track to reach commercial production in the third quarter.
Unlike Goldcorp, Agnico-Eagle beat analyst earnings estimates by $0.12, posting second quarter adjusted earnings of $0.51 per share. Agnico’s strategy of increasing its leverage to the gold price is paying off as the company produced 257,728 ounces - generating record quarterly net income of $100.4 million.
Also beating earnings forecasts was Eldorado Gold (EGO), which reported Thursday morning its second quarter results. Gold production at EGO was 167,940 ounces, nearly double the year-earlier period, at a cash operating costs of $357 per ounce. Profits totaled $60.5 million, or $0.11 per share, compared with $25.9 million, or $0.07 per share, a year ago. Results beat estimates by a wide margin as analyst expectations were $0.08 per share.
After failing to deliver the gold price leverage investors have expected over the past few years, the earnings reports from Barrick, Goldcorp, Agnico-Egale, and Eldorado demonstrate that the tide may have turned. If the gold price stays in the vicinity of $1,200, profits should continue to flow to the bottom line and valuation multiples, which have compressed in recent quarters, may expand to their higher historical average.