Gold's record rally barely budges mining-stock valuation

Gold’s record-setting surge has done little to bolster the standing of companies that produce the precious metal. The FTSE Gold Mines Index was 16% cheaper than the benchmark FTSE All-World Index as of Wednesday based on projected profit in the next 12 months, according to data compiled by Bloomberg. Gold miners’ forward price-earnings ratio has trailed the FTSE All-World’s valuation since May 25, a period in which the metal’s price for immediate delivery rose as much as 20% and exceeded $2,000 an ounce for the first time. The stocks’ discount peaked in June at 19%, the biggest since July 2013. 

Mining Stocks Seen as Cheap Gold Alternative

Shares of gold-mining companies have become a relatively cheap alternative to buying the metal they

produce, according to Jack Ablin, chief investment officer at BMO Private Bank.

     

 

The ratio of the NYSE Arca Gold Miners Index to the price of gold in New York trading on a monthly basis since September 1993, when the industry gauge was created. 

 

Ablin, based in Chicago, highlighted a similar chart yesterday in a research note.

     

Yesterday’s ratio was 0.75, close to this year’s low of  0.70 on May 15. The earlier figure was the lowest since November 2008, when a financial crisis tied to the U.S. housing market’s

collapse sent stocks and gold tumbling.

     “Gauging the right price for gold is a psychological marathon,” Ablin wrote, because demand goes beyond industrial companies. “The miners appear to be one defensive way to play

the precious metal.”

     Jewelers and technology-component makers were responsible for 51 percent of demand last quarter, according to data from the World Gold Council. Gold bar and coin producers, exchange-

traded funds and central banks accounted for the rest.

     The NYSE Arca index has lost 12 percent this year after falling 16 percent in 2011. It’s poised to drop in consecutive years for the first time since a three-year losing streak ended in 1998. Gold is 6.6 percent higher this year and is headed for its 12th straight annual gain.