(Bloomberg News) Gold mining stocks are trading at their cheapest level in at least nine years even as the industry's profits are estimated to almost double this year and bullion trades close to its historic high.
The benchmark NYSE Arca Gold BUGS Index that includes Barrick Gold Corp., Newmont Mining Corp. and AngloGold Ashanti Ltd. ended last week at 17 times earnings, the lowest since at least November 2002 and below a five-year average of 37 times.
Investors sold equities across the board as Europe's debt crisis soured the corporate profit outlook, and they're ignoring analyst projections for bullion and gold producers. The gold index's 16 members will increase combined per-share earnings 94 percent this year, according to estimates compiled by Bloomberg.
"When you look back in history, you will say this was a buying opportunity," said John Wong, a portfolio manager at CQS Group's New City Investment Managers in London and lead manager of the $200 million Golden Prospect Precious Metals Ltd., a fund holding gold and silver stocks. "It's like a coiled spring."
Gold equities have fallen 4.7 percent this year, heading for the first annual decline since 2008. Gold reached a record $1,921.15 on Sept. 6 and is set for an 11th annual gain.
"The market doesn't trust big spikes," said Jon Bergtheil, an analyst at Citigroup. "People will wait to see if gold holds above $1,600 for a while."
'Substantial Disconnect'
Gold averaged about $1,706 an ounce in the third quarter, 39 percent more than a year earlier, and is forecast to average $1,859 next year, according to the median estimate of 18 analysts compiled by Bloomberg. It gained 0.5 percent to $1706.74 at 10:49 a.m. London time.
Hedge fund manager David Einhorn said Nov. 1 that a "substantial disconnect has developed between the price of gold and the mining companies." Einhorn's Greenlight Capital Re cut holdings of the commodity in the third quarter and moved funds into the Market Vectors Gold Miners ETF, which tries to replicate the Arca Gold Miners Index of metal producers. Bullion has more than doubled since the start of 2008 while gold stocks have advanced about 33 percent.
Gold miners' earnings per share and per-share cash flow reached the highest levels in at least nine years during the third quarter, according to data compiled by Bloomberg.