Burdensome Gold Prices... Securities Firms "Recommend Undervalued Gold Mining Stocks"

Daishin Securities Analysis

Amid international gold prices surpassing $3,000 per ounce for the first time in history during trading, analysis suggests that gold mining stocks remain undervalued compared to gold itself.

On the 17th, Park Hyun-jung, a researcher at Daishin Securities, said, "As Trump-driven trade wars continue, increased uncertainty and advance demand have pushed gold prices above $3,000 during trading, setting new highs." She added, "While gold prices breaking new highs may maintain momentum in the short term, the current price level is burdensome to maintain the recent elasticity."

In the current situation where gold prices are hitting resistance levels, attention should be paid to gold mining stocks, according to her opinion.

Park explained, "Gold mining stocks have shown sluggish movement compared to rising gold prices. From a price perspective, they remain undervalued." She added, "Gold mining ETF prices tend to move similarly to the profit calculated by subtracting AISC (All-in Sustaining Cost) from gold prices." AISC refers to the total cost of producing one ounce of gold. By subtracting AISC from gold prices, one can estimate the margin for gold mining companies.

In particular, current conditions are conducive to improving operating profits for gold mining companies, according to the analysis.

She noted, "Among AISC components, wages and contract fees (23%) and electricity and fuel (14%) account for the largest proportions. Natural gas typically weakens from March to mid-May after the heating season, which is the period of maximum consumption. Additionally, the average wage growth rate in the U.S. mining and logging sectors has been slowing since the beginning of the year."

She emphasized, "The combination of steady gold prices with declining wages and natural gas prices creates an environment where gold mining companies' operating profits can increase."

Park recommended the 'VanEck Gold Miners' (GDX) ETF for investing in global gold mining companies. While GDX tracks the performance of global gold mining companies, it's notable that it doesn't exclusively consist of gold mining stocks but also includes other precious metal mining companies. By country, investment proportions are approximately 45% in Canada, 178% in the U.S., and 11% in Australia.

Shin Min-kyung, Hankyung.com reporter radio@hankyung.com