A good number of companies are still increasing pr

first_img A good number of companies are still increasing production, which we expect to translate into much higher share prices as gold rises. The market clearly expects margins and bottom lines to materially improve due to the positive changes most management teams have been able to make. Sentiment has shifted. A number of analysts have started to take notice of the deep valuations gold stocks offer. There’s a sense among an increasing number of investors that the worst is over in the gold sector, and therefore that bargains had best be snapped up while they’re still available. The broader stock market is weak. There’s an inverse relationship between gold and the S&P; more often than not, when one is weak, the other tends to be strong—and Wall Street has been weak. Gold is rising. With each tick up in the gold price, producers become more attractive. Most investors know you can get leverage to the gold price through a gold stock, as has just been amply demonstrated in the last few weeks. That said, gold stocks have been rising sharply since their December 31 lows—some charts have gone almost vertical—so don’t be surprised if we see a pullback soon. But a larger shift in the gold market is under way; we’re moving from a two-plus-year bear market to the beginnings of a new bull market—and that’s when we stand to make the most money. As Doug Casey said in our recent Upturn Millionaires video event: “You have to look at the bright side of this resource market, and that is that it’s the most volatile class of stocks in the world. When they become overpriced, they become extremely overpriced, and when the market bottoms, they become unbelievable values. And that’s where we are right now.” And as mentioned last week, Louis James has just published his new 10-Bagger List for 2014 in the February issue of the International Speculator. It contains his 9 favorite picks he believes could make 1,000% gains over the next year. You can get instant access to the list—plus two free special reports—if you try the International Speculator risk-free today. Love it or your money back; and even if you cancel, you get to keep all the newsletter issues and special reports you received. But act quickly: The next breather gold takes could be the last great buying opportunity before the gold market really takes off. Click here to get started. It’s amazing—these gains look more like annual returns instead of 45-day results. Why Are Gold Stocks Doing So Well? There are several reasons… Bad news was priced in. Many analysts expected bad news from the producers, so Mr. Market was looking at other factors to determine if he should buy or sell. Companies are leaner and meaner. It wasn’t all bad news… Many write-downs and impairment charges were one-time adjustments. Write-downs today can mean less depreciation expense tomorrow, which can add leverage to the upside when gold rises. Most (though not all) companies have been able to reduce costs substantially. My jaw dropped lower and lower last Thursday as I perused quarterly reports from some of the world’s largest gold producers. Many of the results were shockingly bad. Impairment charges, reserve write-downs, earnings losses, and dividend cuts—no company escaped the fallout from lower gold prices. Some reported bad news on every aspect of their businesses. But here’s the most striking thing: The market didn’t care. It’s almost paradoxical—gold stocks rose heartily that day, even those reporting the worst results. GDX (Gold Miners ETF), which consists solely of producers, was up 4.4%.That’s not a lack of concern we’re seeing; it’s outright, almost reckless bullishness. So what the heck is going on? Earnings Down, Stocks Up To get the full picture, first here’s a look at the write-downs and losses reported by five of the world’s largest gold producers last quarter. Total losses for these five companies exceed $5.4 billion. Write-downs were $6 billion. That’s a lot of money for an industry as small as ours. And there’s more to come: Newmont’s (NEM) report is due on Thursday, and with reserves based on $1,400 gold, an impairment charge is virtually guaranteed. AngloGold Ashanti (AU) could have similarly ugly news later this week. Golden Star Resources (GSS) and IAMGOLD (IAG) will almost certainly report write-downs as well, due to high costs and/or low grades. But gold stocks are up. Here’s a chart of the year-to-date gains of the same five producers, along with GDX and gold.last_img

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