Gold prices have notched a 7% rise year to date as of late July, but the yellow metal has had its fair share of ups and downs in 2014.
Gold mining stocks, on the other hand, have risen higher, and posted some eye-popping returns for investors.
Money Morning Global Resource Specialist Peter Krauth explains what's going on...
Our New Best Stocks to Buy List Focuses on Commodities, Small Caps, Dividends
Best stocks to buy for the week ending July 11, 2014: Last week, we loaded up readers with plenty of commodities picks - two gold mining stocks and six oil plays. But commodities only comprised half of the picks we highlighted...
We shared a blue chip giant that's beating the broader market by roughly 50%, recommended five small-cap stocks and one generic drug-maker, and provided a full-year outlook on dividend stocks.Get these, plus more, in our best stocks to buy right now roundup...
Profit from These Two Gold Mining Stocks as Prices Rise
With gold prices crossing $1,300 an ounce last week, Money Morning's Resource Specialist Peter Krauth has pinpointed gold mining stocks that are set to cash in on the rising price of gold.
Gold prices suffered in 2013, down 28%. But these gold mining companies strengthened their operations during a down gold market, and are poised to capitalize with gold prices recovering.As gold prices climb, these companies offer great profit opportunities...
Newmont Mining (NYSE: NEM) Stock Will Shine Again
Owning some gold has long been a part of the Money Morning investing philosophy. After all, gold offers some insurance against the dollar-debasing policies of the U.S. Federal Reserve.
One of the easiest ways to acquire the yellow metal is to buy a gold mining stock such as Newmont Mining Corp. (NYSE: NEM).
At first glance, investing in any gold mining stock looks like a lousy idea. Over the past year, nearly all gold mining stocks have plummeted along with the gold prices - but much further.See how gold mining stocks will rebound here...
My Two Favorite Gold Mining Stocks
With the world’s central banker’s printing money like mad, you would think investing in gold mining stocks would be a no-brainer.
Yet even with these misguided policies cheapening the dollar, the Market Vectors Gold Miners Index (NYSE: GDX) is down 40% from its peak last September and 48% from its all-time highs in 2011.
So why all the pain for investors?
Better yet, have any gold miners fallen so far they are screaming buys right now?
Here's the deal... Read More...
With Gold Prices Flat, It's Time for Junior Miners to Shine
After a heady couple of years, the Midas metal has lost momentum. Gold prices have slipped about 2% in July to fall just below where they started in 2012.
And gold mining stocks have felt the brunt of it more than the metal itself.
For the past few years, the miners have been chasing the metal. The general expectation was that the mining stocks would eventually catch up to gold prices.
But now it looks like the metal is retreating to meet the miners.
The Market Vectors Junior Gold Miners (NYSE: GDXJ), an exchange-traded fund (ETF) that represents the junior miners, is off more than 25% since its inception in late 2009. The big miners represented by Market Vectors Gold Miners (NYSE: GDX) are essentially flat over the same period.
Yet gold prices, as measured by the SPDR Gold Trust (NYSE: GLD) are up almost 40% in the same general timeframe.
So where does that leave gold investors?
Well, it's probably not an ideal time to buy gold if it's pausing here (which it seems to be doing) after a multi-year rally.
And the big miners have their hands full as gold prices have stalled and gold demand has fallen. They may be fully valued, at least for the time being, since they won't be undertaking new projects or acquisitions until things get better or worse.
Beat Gold Prices with a Junior MinerThat leaves the junior miners. They're undervalued enough that they still have some headroom, even given today's tepid metals market. And if things start to improve, they become buyout targets for the big miners.
Everything You Need to Know About Junior Mining Stocks
Let's make something clear up front: junior mining stocks are not for the faint of heart.
Legendary investor Doug Casey calls them "the most volatile stocks on earth."
They can and do regularly undergo massive swings, both positive and negative.
It's a really tough business. Many flame out.
But all it takes is just one 10-bagger to make up for all the dogs in the pound.
Thanks to a new discovery, a takeover bid or full-blown investment mania, it's not uncommon for some of these stocks to return as much as 1,000%, 5,000%, and even 10,000%.
Those are not typos. In fact, there are countless examples.
Aber Resources was a $3 stock in 1993 before it made a big diamond discovery. Four years later, the stock hit $28/share, handing early investors over 900% returns.
Then there's Diamond Fields Resources. Its shares were $4 before geologists made a massive nickel discovery in 1994. Not long after, the stock hit a pre-split equivalent of $160 for a 4,000% return.
That phenomenal 4,000% return was repeated in 2006, when Aurelian Resources Inc. made a high-grade gold discovery in Ecuador. Shares of the junior miner went from $0.89 to almost $40.
So what makes a stock a "junior miner"?
In a pure sense, junior mining companies have market caps somewhere between $5 million and $100 million.
But here's the thing the makes them not for the faint of heart.
Usually, junior miners don't make any money. They just raise money from investors to explore properties for gold, silver, base metals, oil, gas, potash, or uranium, just to name a few.
And even if they make a significant find, junior miners rarely develop it themselves. Instead they sell the project to a major miner, who can more easily raise the required funding and has the experience to build and operate a mine.
OK, so now you're pumped with the idea that one of these little mining companies could help you retire in two years.
And you're right, they can. But not so fast.
The truth is you need to approach this mining subsector with a game plan -- an investment "toolkit" if you will - to help you to cast aside the dogs and focus on the "diamonds in the rough."
Essentially, there are four main areas you need to vet in order to decide if a given junior miner is one to add to your portfolio.
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Mining Stocks: Will the Downturn Last?
Over the last twelve months mining stocks have substantially underperformed the market.
In fact, the Standard and Poor's Metals and Mining select industry index (INDEXSP: SPSIMM) is off 35% in the past year, while the overall market is up 2.5%.
Admittedly commodities prices are down, but only by 14% in the last year. Meanwhile, the cost of some commodities -- notably gold prices -- are much higher than they were.
Given the buoyancy of global monetary policy, this is surprising. For investors, the big question is: will the downturn in mining stocks last?
It truth, though, when you look more closely at operating numbers, the weakness in commodity shares is easier to explain.
Mining Stocks: Breaking Down Barrick GoldFor example, Barrick Gold (NYSE:ABX), a gold and copper miner that is generally well regarded, posted first quarter earnings which were up just 3% from the previous year. That was a surprisingly weak performance given that its gold sales price was up 22% -- even though its copper price realized was down 11%.
However, gold cash mining costs were up 25% and copper cash mining costs were up a startling 66%. So even though copper production and sales were also up sharply, margins on those sales were down 43%.
In other words, even though Barrick enjoyed a favorable operating quarter with good prices, mining costs for both gold and copper were up so sharply that Barrick enjoyed little benefit from this success.
The same picture is clearly seen around the mining sector, and indeed in the related energy sector.
Strong sales prices over the last few years have had two effects.
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Now is the Season for Investing in Gold-mining Stocks
If you're not investing in gold-mining stocks now, you should be.
Analysts at TIS Group reminded me last week that not only are gold-mining stocks very cheap now versus gold bullion, but this also happens to be the best time of the year to buy the stocks.
The gold miners' cycle usually bottoms in August and peaks in March, putting us just a bit after the start of the strong period.
That makes it buying season for gold-mining stocks.
Play Gold's Rise by Investing in Gold-Mining StocksThe rise in gold miners during last year's buying season was fairly dramatic.
From Aug. 31 last year through the following 14 weeks, the Market Vectors ETF Trust(NYSE: GDX), which is comprised of the larger miners, was up 28%, while Market Vectors Junior Gold Miners(NYSE: GDXJ), comprised of smaller producers, was up 48%.
Members of my service captured a bunch of those gains. That was at a time when gold itself was up only 20%, but looking back that was when gold started its trajectory from $1,300 in November to almost $1,900 now.
Gold-mining stocks then went sideways in anticipation of the end of the U.S. Federal Reserve's second round of quantitative easing (QE2) at the end of June, but have now broken out again, as the accompanying chart shows.
Why would the miners improve?
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Cash in on the "Takeover Mania" in the Gold-Mining Sector With These Two Stocks
A "takeover mania" is about to hit gold-mining stocks.
And we're going to show you how to profit.
As many of you are already aware, The Wall Street Journal has just reported that stocks of gold-mining companies are dirt cheap.
Of course, Money Morning readers already knew that.
Since our experts told readers to buy gold back in late 2007 (when the "yellow metal" was trading at $770 an ounce), we've continued to ferret out the best gold-related investments.
If you heeded our advice, you were well-positioned to profit from this year's run-up in gold prices - and probably have a fatter portfolio to show for it.
If you didn't, however, don't fret. The stock market is offering investors a rare second chance.
And we're going to show you how to best benefit.