With gold coming off its worst quarterly loss in multiple decades, the concept of more downside for the yellow metal and the companies that extract it from the earth might be hard to fathom. A slight bounce in gold and gold miners late last week may have given some investors reason to be optimistic, but caution is just as warranted today as it was a week ago.
Outflows from ETFs backed by physical gold have been so intense in the past few weeks that holdings at those funds are now at a four-year low. Gold is now on course for its worst annual performance since 2000, but things are even worse for the miners. [Gold ETF Outflows Continue]
Believe it or not, at least one analyst sees more downside ahead for gold miners, one 2013’s most derided industry groups, and he warns that mining shares are not as cheap as they may appear.
“Given the dramatic decline in share prices, some may perceive gold equities as inexpensive. We strongly disagree. In our opinion, gold equities have rarely been more expensive when we incorporate current gold prices,” said Jefferies analyst Peter Ward in a note cited by Ben Levisohn at Barron’s.
In the note, Ward downgraded shares of Barrick (NYSE: ABX) to hold and shares of Goldcorp (NYSE: GG), Kinross Gold (NYSE: KGC) and Newmont Mining (NYSE: NEM) to underperform. Ward notes that gold prices will need to fall further before existing mines trim production and that even when production is pared, those “cuts will not do much to support the gold price in the medium term.” [Beware Gold Miners Bounce]