Gold's price surge is beginning to shine on the world's top producers as they report massive profits, while experts predict the cash torrent is just getting going.
Toronto-based Barrick Gold Corp., the world's biggest gold producer, reported a record quarterly profit, while Goldcorp Inc. quadrupled its profit and doubled its dividend. Shares of both companies shot up Thursday as results impressed investors and gold prices resumed their upward climb.
Gold, at about $1,342 (U.S.) an ounce, has risen about 30 per cent in the past year and remains near its all-time high of $1,387 reached earlier this month. The increase comes amid new predictions from mainstream investment banks such as RBC Capital Markets that if gold's rally turned into a full-blown investment bubble, prices could run to nearly $4,000 an ounce, well beyond the precious metal's inflation-adjusted peak of about $2,400 in 1980. Most analysts, however, see more limited gains ahead, and some say gold prices could stage an abrupt turn lower, especially if the U.S. dollar overcomes its recent weakness.
Gold "does have significant room to go," said Chuck Jeannes, chief executive officer of Goldcorp.
Underpinning the gains in gold, Mr. Jeannes and other supporters believe, is a fading faith in fiat currencies, the paper money issued by central banks in ever-greater quantities. The spectre of so-called currency wars has bolstered this view, and gold bulls argue the commodity provides a store of wealth whether the flood of global currency liquidity leads to inflation or fails to revive stalled economies.
In a report this week entitled "Bonfire of the Currencies," longtime gold supporter Sprott Asset Management LP insisted gold producers have more healthy earnings gains ahead. "If you haven't participated in gold's recent rise, don't fret, because the fun has only just begun," the Sprott report said.
"It's all about earnings. ... Investors seek out earnings growth wherever they can find it and we can't think of a single equity sector that exhibits better year-over-year earnings growth potential than the gold producers. ... As countries decide to burn their currencies in the devaluation race, gold has responded, and now it's the producers turn to perform. We'll gladly take the earnings," the report said.
Institutional strategist Myles Zyblock at RBC added: "The real fireworks might still be several quarters away."
Gold's climb to record heights hasn't drawn the widespread interest of investors to the biggest names in the industry. The hot spot for gold equities has been the smaller producers, mid-tier companies and juniors. Big investments in such companies as Osisko Mining have propelled the $1-billion (Canadian) Dynamic Precious Metals fund up 72 per cent in the past year.
Before trading Thursday, Barrick's shares had risen about 20 per cent in the last year- which made it just a median performer in the 234-member S&P/TSX index. Goldcorp badly lagged, with its return of 8 per cent ranking 191 out of 234 names.
But soaring earnings among the biggest producers is rekindling interest.
"People have ignored the big-cap companies to some degree, unfairly," said Robert Cohen, the fund manager for Goodman & Co. "They'll probably be more interested in them now."
On Thursday, Goldcorp's stock jumped 4.6 per cent as Barrick gained 2.4 per cent.
Barrick's profit in the third quarter was a record $839-million (U.S.). On an adjusted basis it was $829-million, up three-quarters from $473-million a year ago. (The adjusted basis was presented for comparison purposes and strips out massive losses Barrick took last year associated with its hedge book.)
Goldcorp, which reported results late Wednesday, made $464-million in the third quarter, more than quadruple the $114-million of a year earlier. The company doubled its dividend, paid monthly, to 36 cents a year- though the yield on the stock is less than 1 per cent.
Skepticism about gold still abounds, with critics wondering how a metal that has little industrial use can keep rising. It isn't a crucial component in any product in high demand. Even if the world entered severe distress, critics wonder whether gold could actually be used as a currency and medium of exchange, since gold quantities are relatively small.
Sheryl Purdy, a vice-president at Leede Financial Markets Inc. in Calgary, is among the skeptics. The stockbroker works at a Vancouver-Calgary firm that is full of gold bulls and has made significant money among mid-tier/junior names. Still, Ms. Purdy pointed to the relative underperformance of the big names Barrick and Goldcorp as an indication that there are more skeptics than believers.
"The share prices of Barrick and Goldcorp should be much higher and they're not," said Ms. Purdy. On the seeming inexorable rise in the price of gold, Ms. Purdy said: "I'm sitting on one side, saying, 'I don't get it, it's too far overdone.'"
Barrick's third-quarter profit, a record
Goldcorp's third-quarter profit, more than quadruple a year ago
The price of an ounce of gold on Thursday