Savage Blow to Tier II Gold Stocks

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Since 7 March, when resources stocks were cresting the top of a wonderful wave, few subsectors of the global resources equity arena have been as savagely sold down as Tier II gold stocks, ranging from runaway success stories such as Yamana (AUY US, $14.23 a share) to Pamodzi Gold (PZG SJ, R8.90), a South African name struggling to sell its growth story and also battling with a legacy hedge book.

Since 7 March, when resources stocks were cresting the top of a wonderful wave, few subsectors of the global resources equity arena have been as savagely sold down as Tier II gold stocks, ranging from runaway success stories such as Yamana (AUY US, $14.23 a share) to Pamodzi Gold (PZG SJ, R8.90), a South African name struggling to sell its growth story and also battling with a legacy hedge book.

This subsector also includes another spectacular high flying stock of recent times, Agnico-Eagle (AEM US, $65.20), which, like Yamana, saw its market value rise above the $10bn level as gold bullion hit a record $1 030 an ounce just a month ago. Since then, however, a number of stocks in the Tier II classification have been sold off, by up to 25%.

These tend to be stocks which display a high "Beta" to the gold bullion price, where a stock price maintains a close correlation with the value of the metal, and thus stands vulnerable to the risk of facing a high Beta on the way down as well, with bullion falling decisively below $900 an ounce this week. Names that fit here include Yamana, DRDGold (DRD SJ, R7.48), and High River (HRG CN, C$2.50). Pamodzi Gold, which illustrated a low Beta on the way up, certainly, however, caught it on the way down.

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