Recovery Anticipated for Gold Stocks as Bullion Price Picks Up

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"A lot of the hot money hedge fund players in the month of July were net sellers, because of big redemptions, and (because) they were nailing down profits wherever they could to offset huge losses," said John Ing, president of Toronto investment house Maison Placements.

Large gold producers such as Barrick, Goldcorp and Yamana could be set for a big rebound as bullion prices look set to rise and institutional players show signs of returning to the issues.

Gold producers are fond of saying their stocks are leveraged to gold prices, meaning a gain in the metal translates to an even greater gain in the miners' shares. But the downside of the equation has been evident over the past month, as a 20 percent drop in bullion from mid-July to mid-August has led to a 28 percent fall in gold stocks, as measured by the S&P/TSX global gold index.

For large players, the drop has been even steeper -- topping 30 percent in many cases -- fueled in part by a second-quarter earnings period that revealed soaring mining costs and by hedge fund selling.

"A lot of the hot money hedge fund players in the month of July were net sellers, because of big redemptions, and (because) they were nailing down profits wherever they could to offset huge losses," said John Ing, president of Toronto investment house Maison Placements. But with gold prices showing signs that they may have hit bottom and the market about to emerge from its traditional August slowdown, the hard-hit gold issues are seen offering a significant upside.

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