Surveys

Current Depressed Gold Share Price Levels Provide Attractive Opportunity - ETF Securities

Stephen Little Reporter London 16 July 2013

Current Depressed Gold Share Price Levels Provide Attractive Opportunity - ETF Securities

Gold miners' shares have fallen over 50 per cent since the beginning of 2013. While the bottom of the de-rating might not have been reached yet, most of the write-offs have already been reflected in market valuations and the current depressed share price levels provide an attractive opportunity, according to a report by ETF Securities.

ETF Securities said that with gold bullion slumping into a bear market, gold miners might be forced to write down the value of their assets by year-end.

Newcrest, one of the top ten gold producers, has already announced it will reduce the value of its mines by as much as $5.6 billion and other miners are expected to follow suit when they report annual results, as most companies valued their reserves assuming a gold price of $1,300oz or higher.

The firm predicts that while some write-downs are likely, downside appears limited given recent sharp share price moves down, which will open up opportunities for investors to begin to accumulate positions.

The research said that as gold miners are trading below their net asset value, this potentially sets a medium-term base for the share price.

"In our opinion, the recent correction in miners' shares has therefore been excessive and  gold miners may now have returned to attractive long-term accumulation levels," said Simona Gambarini, associate director of research at ETF Securities.

The firm pointed out that the current low price of gold was not sustainable and that in the long run the gold price will have to increase to compensate for rising extraction costs, declining ore grades, and reserve replacement.

"In the next few weeks, as miners report results and are forced to write-down assets, there might be some near-term downside potential for their share prices. Despite this, the sharp drop in gold miners’ prices to below book-value and the substantial discount to other mining companies, we believe that in the coming months there will be opportunities for investors to begin to accumulate positions," said Gambarini.

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