Higher Gold Prices (GLD) Provide Relief to Miners (GDX), But Issues Remain

July 27, 2012 7:51 AM EDT
Shares of Barrick Gold Corp. (NYSE: ABX) closed lower by over three percent yesterday after the company reported Q2 EPS of $0.00, $0.96 worse than the analyst estimate of $0.96. Revenue for the quarter came in at $3.28 billion versus the consensus estimate of $3.5 billion. The huge miss cratered shares in pre-market trading, but shares later recovered due to a rally in the spot price of gold.

SPDR Gold Trust ETF (NYSE: GLD) tacked on 0.71 percent on Thursday, as the spot of gold broke out past $1600/oz after trading in a tight range for weeks. GLD is on the move again in early trading of Friday, as the spot presses resistance at $1630/oz.

The gold rally is providing relief to beleaguered mining company. Year-to-date, GDX is lower by 20 percent. Years of stellar gold prices have caused bloat at mining companies, and this year they are paying the price. As a result, miners such as Barrick are refocusing their business strategies, turning away from production goals and towards efforts to create free cash flow. Higher gold prices will provide companies wiggle room, but given this year's underperformance, investors are unlikely to favor miners until their numbers show signs of improvement.

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