A Day in the Life of a Gold Stock Investor: Goldcorp Inc. (GG), Barrick Gold Corporation (ABX), Newmont Mining Corp (NEM)

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At Insider Monkey, we have teamed up with MarketWatch to create the Billionaire Hedge Fund Index to measure how well the smart money can pick stocks. The Index tracks more than 40 billionaire fund managers, and after a full year of its existence, the results are truly exemplary. In 2012, this index returned 24.3% vs. 16.0% for the S&P 500 ETF. That’s an outperformance of 8.3 percentage points (learn more about how to use this market-dominating strategy).

For today’s average gold stockholder, though, times have been much tougher. Some days must feel like an endless series of lost minor battles. Wednesday, January 30, 2013 was just such one.

Goldcorp Inc. (USA) (NYSE:GG)

A day in the life.

The 30th of last month turned into a day of frustration for shareholders of gold equities.  However, conditions were in place for a nice performance.  Gold bullion, stronger overnight in Europe and Asia, opened in New York firmly up (~+15/oz).  Silver followed.  Pre-market, the quarterly US GDP report had surprised to the downside.  The dollar index was weak.

By the end of the trading day, these backdrop conditions had held, and in some cases strengthened, as an afternoon Fed policy announcement reaffirmed an uber-easy dollar policy.   As a result, the dollar weakened further against the Euro, Swiss franc, Pound sterling, and Canadian dollar, losing anywhere from .3% to 1% depending on the currency cross and closing near day lows against all of them.  The commodity-based CRB Index also closed at an intraday high, up 1%.

Ostensibly, everything pointed to a good day for gold equities.

Gold equities only briefly followed suit, though. Initially, gold issues opened up nicely. They hit day highs at 10:30 am EST: Goldcorp Inc. (NYSE:GG) +1.8%, Barrick Gold Corporation (NYSE:ABX) +1.4%, Newmont Mining Corp (NYSE:NEM) and Kinross Gold Corporation (NYSE:KGC) both up 2.1%, and Royal Gold, Inc (NASDAQ:RGLD) + 2.4%. However after these highs, in frustrating, confounding, and hair pulling fashion, gold equities began fading and proceeded to sell off the rest of the day.

Had gold bullion sold off?  No, gold held the majority of its morning gains throughout the day. Had the stock market sold off? No, the S&P 500 did not seriously sell until after 2:00 pm.  The S&P sell-off only exacerbated the steady down move already in the sector. At the close of trading, gold shares had not simply given up the morning’s gains, but unbelievably finished solidly down: ABX -1.3%, GG -.4%, NEM -.6, RGLD -1.6%, and KGC -1.2%.

Even more depressingly, a popular ratio measure of relative value, the share price/gold price ratio, hit or hovered near three year lows for numerous issues. What looked promising ended as another gut check for gold equities. The day’s price action could only leave a gold equity investor asking “what’s next?” and then trudging onto the next day.

Of course, the relative under-performance story of gold equities is old and known (see “What’s Wrong With Gold Stocks?”), particularly the last two years.  Another strong wave has occurred the last four months. Last Wednesday was a shining example of this trend. Gold stock investors must feel isolated; their belief in the sector betrayed.

What have insiders been doing?

Have insiders moved in to buy their own supposedly cheap shares, take advantage of days like January 30, and rebuild investor confidence?  The answer appears to be no.  A search for insider purchases over the last year for the five issues discussed above gives pause. Three issues—Barrick, Goldcorp and Kinross—showed no overall insider activity over the last twelve months.  This dearth of activity includes a lack of selling as well.  But as readers of Insider Monkey know (learn why you should track insider activity), the importance of actual, consistent insider purchases is paramount.  This lack of buying is disquieting.  For Royal Gold, only a slew of selling is found.  The case of Newmont Mining produces two purchases by the company’s COO, but these occur within a tsunami of selling over the same period.

Curiously, a search for insider purchases over an expanded period of the last five years produces little more—a handful of purchases (4) of Royal Gold from 2009 through 2011 by Director Craig Haase.  The lack of overall insider buying and the swamping by selling when purchases do occur clearly shows that insiders have not been that “into” their companies.  The paralleling of this lack of buying with flat gold equity returns is both ironic and telling.  Over the years, managements of gold miners have often talked up a glowing outlook for the gold sector, given their investing behavior; perhaps they need to tone it down.

What can retail investors do?

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