Gold bugs rejoice… Should they stick a fork in it?
Today's Financial News - Posted February 20, 2009
Gold prices break the $1,000 mark. Investors in gold-mining stocks are counting their gains, but should they be cashing out. Is the run at companies like Newmont Mining (NYSE:NEW) over, or is it just getting started?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore—(TFN): Gold bugs are cheering today. After expecting a huge surge in pricing since the onslaught of the economic meltdown, they are finally getting the rally they wanted. As I write, an ounce of gold is trading for $994. Even more exciting, the official settle price for the day is into the world of a thousand-dollar handle, $1002.
If the price of the precious metal is surging this week, what is happening to the companies fortunate enough to be pulling the stuff out of the ground? After all, the higher the price, the higher their margins.
If you are holding shares of Newmont Mining (NYSE:NEM), you’ve probably checked in on your position several times today. Even as the equities market flops like a dead fish, shares of the company surged by as much as 10% today, proving their still is room for profits in the equities market.
While today’s action is grand, pull the chart back a few months and the scene is even more exciting. If you had plunked a thousand bucks into the company in October, you’d currently be sitting on more than $1,800.
Now, of course, here is where things get a bit dicey. Newmont’s share price has risen by about 80%, but the price of gold has jumped only about 40%. See the problem?
Yes, there are some other fundamental reasons Newmont’s share price is outrunning the price of gold, but do not expect the same kind of returns for much longer. Much of the gold miners gains have been based on speculation of the surge in gold prices to come.
Now that the bulls are here, the speculators have no reason to stay in shares of Newmont, when they can simply play the pure asset.
If you have made some money in Newmont or any of its industry brethren, now is the time to back up the armored truck and cash in. Going forward, the risk greatly outweighs the reward.
This is not the time to be greedy.
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