The two best conditions that you can have for gold mining stocks are a recovering stock market and rising gold prices. Ever since the week that European Central Bank president Mario Draghi made his whatever-it-takes promise, gold miners have been blazing higher, helped by gold’s renewed gleam in anticipation of ECB action and a stock market that has been shooting higher.
Since July 23, the price of the metal, tracked by the GLD, is 12.7% higher, but the Market Vectors Gold Miners (GDX) ETF has jumped 32.3%. Hecla Mining is up an astounding 51%, while Goldcorp and Agnico Eagle are both up better than 40% in just eight weeks.
As is usually the case when miners outperform the metal, smaller and more speculative miners lead the way. The Junior Gold Miners (GDXJ) ETF is up 37.6%.
Gold bars
Gold, the metal itself, has been the place to hide during periods of serious market stress like the financial meltdown in the fall of 2008 with the bankruptcy of Lehman Bros. and the failure of Congress to pass the TARP package immediately. When the recovery happens, however, miners tend to soar as monetary policy responses help both the gold price and the stock market–a double whammy.
“You have to remember that the gold miners are stocks, first and foremost, even if they have a strong connection to gold,” says Martin Murenbeeld, chief economist at Canada’s DundeeWealth in Toronto. He says that Bernanke made it clear that his focus is on employment and that he is not worried about inflation as he sets out to buy $40 billion worth of mortgage backed securities per month until the jobless rate drops significantly.
“He will do whatever it takes in terms of monetary policy tools,” says Murenbeeld. “If the economy looks sick or weak at year-end and thereafter, more purchases are forthcoming. His hands are not tied, which is great for equities and gold.”
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