Gold stocks rule the world
As stock indices around the world grovel increasingly toward finding fresh multi year lows, listed gold stocks continue to reign as global equity champions, with a gain from lows seen four months ago of more than 100%, measured on a weighted average dollar basis. By comparison, the MSCI Barra dollar index for all global equities is not even 1% above its lows.The latter index, like so many other composite indices, is at lows not seen in more than a decade. The KBW bank index, which measures the fortunes and misfortunes of 24 banks across the US, has managed to drift up by 10% from its low points, but those of its components that have not been disemboweled have been raised mainly by government bail outs. Looking more broadly at banking stocks, across the world, the lift from lows is now in the order of 18%, led by gentle rises in Chinese banking stocks, such as China Construction Bank, Bank of China, and ICBC. The aggregate market value of Chinese banking stocks is now the heaviest, country wise, among global banking stocks. The prices of global mining stocks were savaged downwards from lofty peaks around May 2008; the rot really set in as commodity prices went increasingly south after crude oil peaked on 15 July 2008. The global financial crisis has exacerbated the profile of miners with overloaded levels of debt, a game that is yet to be played out. Dollar gold bullion prices have suffered the least among global commodities, with a current loss of about 12% from the peak seen in March 2008. It has become apparent, however, that investors have increasingly taken to investing in gold exchange traded funds (ETFs), which offer proxy ownership of physical gold bullion, and can be traded as simply as a listed gold, or other, stock. The world’s biggest gold ETF, the US-listed SPDR Gold Shares ETF, currently holds USD 30.5bn of physical gold bullion.Where a number of other sectors, in certain countries, have been forced to take government bail outs, miners across the world have raised, or are raising, non-bank cash, directly from investors and other miners, of USD 38.7bn over the past few months. More than half this amount, at USD 19.5bn, is earmarked to be invested by Chinalco in debt-ridden Rio Tinto; USD 12.3bn is earmarked for direct investment in equity stakes in various underlying prized Rio Tinto assets, while USD 7.2bn is proposed to go into Rio Tinto convertibles that could later have the effect of increasing Chinalco’s stake in Rio Tinto at the parent level. Listed gold stocks have raised USD 5.3bn in the past few months. The vast majority of these transactions have been in the form of bought deals, where a few brokers buy wholesale blocks of fresh equity from a gold stock, and sell it on to many retail and institutional investors. The majority of these raisings have been only mildly dilutive for the gold stock involved. Newmont, a Tier I gold digger, sold 30m new shares to raise USD 1.1bn, and also sold convertibles to raise a further USD 450m. The total USD 1.6bn raised comprises less than 10% of Newmont’s market value; Xstrata, a debt-riddled diversified miner, is, by contrast, raising USD 5.7bn on the back of a market value of USD 7.3bn, translating into a hugely dilutive issue. For investors with an esoteric bent, listed gold stocks have in fact been outperformed by a precious metal sibling in the form of listed silver stocks. The investable universe of primary silver stocks, however, is just USD 10.8bn, compared to USD 191bn for gold stocks, and is dominated by a hugely sizeable Fresnillo, which also dominates performance, with an increase of just over 300% in its London stock price, from lows seen just four months ago.