Gold mining stocks have followed a similar path, with a rise in February and a slump into April. But their year-to-date gains have delivered some eye-popping returns for investors.
Osisko Mining Corp. (TSE: OSK) has gained 83.44% year to date; Primero Mining Corp. (NYSE: PPP) is up 75%; Agnico Eagle Mines Ltd. (NYSE: AEM) is up 56.71%; B2Gold Corp. (TSE: BTO) is up 32.8%; Goldcorp Inc. (NYSE: GG) has gained 27.41%; and the list goes on.
To find out what's driving gold-mining stock gains higher than the physical metal's climb, we turned to Money Morning's Global Resource Specialist Peter Krauth. He told us exactly what's behind this uptrend in gold miners - and if it's something that investors can profit from today...
The Forces Driving Up Gold Mining Stocks in 2014
Gold mining stocks' recent rise was set up last year.
You see, gold prices dropped 28% in 2013. That put a tight squeeze on gold mining companies' bottom lines.
"The past couple of years have seen considerable pressure on most gold equities, thanks in large part to a declining then consolidating gold price," Krauth said in April. "That became a major challenge to gold miners as they've tried to grow production despite falling gold grades."
What's more, commodities prices fell over the last three years, so many gold mining companies took to costs with a machete and slashed wherever possible, to weather the storm for an extended rout in prices.
"Gold mining companies had to downsize staff, axe projects, and even rationalize selling non-core assets," Krauth told his Real Assets and Returns readers on July 7."As a result, now they are much leaner, and will be much more profitable when commodities prices rise again."
While many gold mining stocks faltered in the past few years, those companies that managed to strengthen operations during the down gold market and commodities slump were poised to capitalize on gold prices' rise in 2014.
And this move isn't gold-specific, which is good for the entire mining industry...
"We're starting to see real movement in commodities. For example, early in the year, there was a huge move in agricultural commodities. The PowerShares DB Agriculture ETF made a huge move, most of it in the month of February, from $24 to $29. It's up more than 9.5% year to date," Krauth said. "Higher commodities prices will prove to be a bounty for the miners and other resource producers."
Additionally, recent gold mining industry M&A activity has been a good sign for gold mining stocks.
In April and May, Goldcorp got into a bidding war with Agnico Eagle Mines and Yamana Gold in a hostile attempt to take over Osisko Mining. Smaller deals have also taken place. In June, B2Gold Corp. merged with Papillon Resources Ltd. (ASX: PIR), and Mandalay Resources Corp. (TSE: MND) acquired Elgin Mining (TSE: ELG). And in the copper space, First Quantum Minerals Ltd. (TSE: FM) took over Lumina Copper Corp. (CVE: LCC).
"This activity in mergers and acquisitions reflects a feeling of confidence and strength on the part of the mining industry," Krauth said.
Krauth identified two gold mining stocks he expects will continue to benefit in coming months - one company's gold-equivalent production is expected to grow by 44% over the next three years, and the other just underwent an acquisition that Krauth believes will vault production up some 180% by 2016. You can get those picks - for free - here...