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Gold mining companies have returned to the forefront of the market as gold prices break decisively above $2,000 per troy ounce and are projected to approach their all-time highs.
Investors ponder if gold mining businesses have already capitalized from the recent gains in the price of the precious metal, or whether they are instead selling at a discount.
By plotting the VanEck Gold Miners ETF (NYSE:GDX) in relation to the price of gold, it seems that gold miners are trading relatively cheap with respect to what the bullion prices would suggest.
Assuming a perfect or nearly perfect correlation with gold prices, as it has been for much of the past decade, the VanEck Gold Miners ETF would have traded about 30% higher than current levels.
When gold prices surged above $2,000/oz last year in March 2022 and in August 2020, the VanEck Gold Miners ETF traded above $40 per share, or at least 25% higher than today's price.
Why Are Gold Miners So Cheap To Gold?
The reason why gold miners performed somewhat poorly in comparison to commodity prices was because the industry's major players—Newmont Corp. (NYSE:NEM), Barrick Gold Corp. (NYSE:GOLD), Franco-Nevada Corp. (NYSE:FNV), and Agnico Eagles Mines Ltd. (NYSE:AEM)—rose far less than other smaller names in the industry.
Stocks with less than 1% weight in the GDX portfolio, such as Equinox Gold Corp. (NYSEAM:EQX), up 70%, Dundee Precious Metals Ltd. (OTCPK: DPMLF), up 58%, and Torex Gold Resources (OTCPK: TORXF), up 45%, have produced the biggest year-to-date gains in the gold mining industry.
In essence, if the bottom of the sector has soared in response to gold increases, the heavyweights have yet to jump on gold's bullish bandwagon.
GDX Best-Performing Holdings Year-to-Date
|
Company |
Weight (%) |
YTD Return (%) |
|
Equinox Gold Corp. |
0.69 |
69.82 |
|
Dundee Precious Metals Inc. |
0.58 |
58.31 |
|
Torex Gold Resources Inc. |
0.58 |
45.02 |
GDX Top Holdings and Their Performance Year-to-Date
|
Company |
Weight (%) |
YTD Return (%) |
|
Newmont Corporation |
10.40 |
10.59 |
|
Barrick Gold Corporation |
8.82 |
15.21 |
|
Franco-Nevada Corporation |
7.57 |
13.03 |
|
Agnico Eagle Mines Limited |
7.25 |
8.12 |
Newmont Corp: Analyst Price Targets Might Be Raised Shortly
The present median analyst price target for Newmont stands at $56.00, a relatively conservative figure when considering the implications of current gold prices.
Wall Street analysts have traditionally adjusted Newmont's price target with some lag compared to gold price fluctuations.
Should gold prices continue to sustain at current levels or even increase, it's reasonable to anticipate upward revisions for Newmont's and other gold mining giants' price targets in the coming weeks or months. This trend could potentially yield a positive impact on mining stock prices.
