Any Fool knows that the goal is to buy low and sell high. If you’re considering purchasing an undervalued gold mining stock, this is your golden opportunity.
Private citizens rushed to the bank yesterday in Cyprus; a flurry of withdrawals resulted as citizens learned the terms of the Cyprus bailout. Imagine taking 10% of a private citizen’s funds to cover the bailout. Is it any wonder that the Eurozone bailout plan failed? Mike Maloney of GoldSilver.com stated that “the Cyprus bank deposit confiscation is a test to see how blatant the expropriation of private assets can become.” The very idea of considering taking private funds is unthinkable to me.
Gold reacts to economic news
What does this have to do with gold mining stocks? The market made small corrections in response to the news. The most significant change was Yamaha Gold with a gain of 2.7%. That may not be enough to send you rushing to your computer to put in a “buy” order, but it’s important to consider that what happens in the world economy has an effect on gold and gold mining stocks. Gold is legal tender and gold mining is the means by which we withdraw that shiny golden object from its current residence.
As gold prices rose over the last year, ($1,555 to $1,796 per Troy ounce), gold miners adopted a “growth-at-all-costs” attitude. With the pullback in gold prices over the last few months, their focus has been forced to change. Gold mining company CEOs are now apologizing to shareholders and promising they will do better. They’re shedding unprofitable mines and focusing more on cash flow and dividend yields.
Gold mining stocks
How does this affect investors? As long as the mine is located in a stable country, the cash flow is good and the stock price is low, this is certainly a short-term investment worth considering. Yamana Gold Inc. (USA) (NYSE:AUY) certainly fits the criteria with mines in Brazil, Chile, Mexico and Argentina. With cash flow of $509 million and production at $500 an ounce, as opposed to South Africa, with production at $800 plus per ounce, this stock should be high on your watch list.
Morningstar’s Samuel Lee argues that gold miners offer the richest yields in years. Dividends are growing at a nice clip. As long as gold prices remain fairly stable and the stocks are undervalued, gold mining stocks are becoming more appealing.