Gold Bulls Should Pour Their Winnings into Mines

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"We expect shares to outperform physical gold during the next six months. . ."

Gold bulls, flush from a ninth year of gains in the metal, should pour their winnings into mining companies as the shares benefit from falling costs, according to analysts at JPMorgan Chase & Co. and Fairfax IS.

The CHART OF THE DAY shows the FTSE Gold Mining Index, including Barrick Gold Corp., Newmont Mining Corp., AngloGold Ashanti Ltd. and Gold Fields Ltd., has underperformed spot gold for about a year. Surging costs for fuel, labor and steel last year, and declines in global stock markets have pushed the mining index to near a record low relative to the gold price.

"We would expect gold companies to outperform the gold price from here," John Meyer, an analyst at Fairfax in London, said March 12. "Gold miners are not having to compete quite so much with other miners in terms of skills and supplies. Margins are relatively good in the industry."

"Every dog has its day," said JPMorgan's Steve Shepherd, Allan Cooke and Abhishek Tiwari in a note. "South African gold equities will have their day in 2009. We expect shares to outperform physical gold during the next six months as the market starts to reward expanding free cash flow and margins."

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