Operators in South Africa, Australia and Canada have benefited in the last year as their currencies weakened against the greenback, in which gold is priced. And as long as the recovery remains uncertain, the dollar will continue to strengthen alongside gold.
Further, miners have been preparing for an anticipated jump in gold prices by increasing their sensitivity to the market. Traditionally, gold miners have hedged against gold to protect themselves from the commodity’s high volatility, but in the past year major producers have been eliminating hedges, with Barrick Gold planning to get rid of $1.9bn worth of gold hedges altogether by September 2010.
Added to this is the low marginal cost of increasing production – once a mine is built, it costs little to speed up extraction – and gold miners look set to win big from the fear gripping global markets....
High costs, plus gold stock being stocks, were two reasons why the gold miners were slaughtered in '08 while gold itself only fell 30%. Earnings for the majors are coming in better than expected; if costs stay contained, that earnings improvement will continue. It may only be me, but the stocks seem to have been slow to rise even though the earnings situation is improving; that says "overlooked."