Another Rough Day for Gold Stocks

Another day, another lost dollar for investors in gold. According to one analyst report, the worst is yet to come.

Iain Butler

Chief Investment Advisor, Motley Fool Canada Fool since November 2012 Iain Butler, CFA, is Lead Advisor on Discovery Canada 2017. He is also the Chief Investment Advisor for Motley Fool Canada and is the lead advisor on its flagship Stock Advisor Canada product. Before joining the Fool, Iain was a “buy-side” analyst and through this experience is well-versed in the idiosyncratic ways of the Canadian market. His investing interests are centred on scouring the market for interesting businesses that trade at reasonable prices and offer an appealing risk/reward relationship. Since joining the Fool in 2012, Iain dedicates each day to spreading Foolishness throughout this great country!

Published April 2, 2013 3:16 pm EDT

Gold stocks were once again at the bottom of the barrel during Tuesday’s version of the S&P/TSX Composite Index. Because of their relative heft, the two biggest drags on the Canadian market were Goldcorp (TSX:G) and Barrick (TSX:ABX), down 2.6% and 2.1% respectively mid-way through the afternoon. Eldorado (TSX:ELD), Kinross (TSX:K), and Yamana (TSX:YRI), down 7.4%, 4.3%, and 3.2% respectively weren’t far off.

A mixed bag of U.S. and European economic data has investors feeling more comfortable by the day, decreasing the interest in gold’s safe-haven characteristics. The spot price of gold is currently down 1.4% on the day to US$1,577/oz.

This level however is well above the price that Societe Generale sees the price of gold falling to before the end of the year. In a recently released report SocGen predicts the price of gold will average $1,500/oz in 2013, and close out the year at $1,375/oz. The Bloomberg consensus indicates a year-end price of $1,752/oz making SocGen un gros ours (a big bear).

I’d happily bet that gold won’t sit exactly on $1,375/oz or $1,752/oz at the end of the year. I’m far less certain however about which price it will be closer too. However, with the shares of the gold miners being as beaten up as they’ve been, a move by the commodity in the direction of the consensus is likely to be met with more upside than the downside risk involved with SocGen’s outlook.

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Fool contributor Iain Butler owns shares in Barrick Gold and Yamana Gold and is short July 2013 $32 put options in Goldcorp. The Motley Fool has no positions in the stocks mentioned above.