Why the shares of GOLD mining companies could rise more than the rise in the price of gold?

GOLD mining companies may continue to outperform the rise in the price of the underlying for a few reasons that we will tend to discuss in this article.

The first of the reasons we should analyze is related to the increase in profit margins and positive cash flow which is more than proportional to the price of gold. A leverage effect of profits is created with respect to the price of gold.

Among the mining companies with listed shares we mention the following:

  • Barrick Gold
  • NewMont
  • Agnico-Eagle Mines
  • NewCrest Mining
  • Yamana Gold

Leverage between the price of gold and the profits of mining companies and therefore on the valuation of shares on the stock exchange

When the price of gold rises, there is an increase in profit margins for mining companies due to the fact that production costs rise slightly compared to the price of the underlying.

For example, in 2019 the average cost of gold mining was 975 usd with an average price of the GOLD of 1400 usd … so 425 usd of profit margin.
In 2020, the average price of production rose to 984 usd while the price of gold averaged 1748 usd … or a profit of 764 usd (an increase of 339 usd + 79.76%).

from https://www.barrick.com/English/investors/default.aspx

from https://www.barrick.com/English/investors/default.aspx

The increase in profit margins is reflected in:
• dividend distributed
• positive cash flow
• appreciation of shares on the stock exchange

Charts, Trend, Support and Resistances to trade or for investing

Trends and Charts on publicly traded mining stocks

Analyzing the charts of the mining shares present in the mt5 of the XM broker we propose the following studies:

BarrickGold (GOLD.N)

BarrickGOLD has tripled the value of its shares after the 2020 low of around $ 13. It is currently experiencing a pause phase (due to the downturn in gold prices) around 22 dollars. We believe $ 22 is a fair price and in line with the fundamental performance of the company which has continued to prove solid, growing and paying dividends. The 200 moving average currently stands at $ 17.5.

NewMont (NEM.M)

NewMont experienced a similar price change to BarrickGold even though it got less investor attention. Prices have managed to double compared to the low of 2020. Currently there is a decline in prices on 59 dollars but that could in our opinion seek support at around 52 dollars. The 200 moving average stands at $ 42.50.

AgnicoEagle Mines (AEM.N)

AgnicoEagleMines performed well, almost better than BarrickGold in 2020. Also in this case we register a phase of weakness with prices around 70 dollars. Currently, support around $ 62 could be sought. The moving average is around $ 52.

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