By Relmor Demitrius
Yamana Gold Inc.(NYSE:AUY) and other miners are feeling the effects of record gold prices. Due to extreme market conditions in 2008, Yamana Gold has fallen short of its own high, trading near $11.25 today, but had traded as high as $14 in December of 2009. Will Yamana Gold and other miners see another explosion back to extremely bullish prices?
Strong gold prices have been providing an excellent over $10 base on shares of AUY. I am bullish on this equity anytime its trading strong over the $10 line. Checking the charts we can see strong support in this area and a recent gap up and hold has given reason for investors in AMEX:HUI and NYSE:GDX companies to have hope of an early summer breakout. The higher AUY trades, the more attune to market sentiment it will trade. Is the NYSE:GLD a better play here? When is spot gold due for a pull back? All equities can be sold regardless of strength of sector in market pullbacks and gold miner shares are certainly no exception. With price ranges from $18 to $4 during the 2008 blow off top to the sinking lows of the dreaded March of 2009 area, fear buying into shares of gold miners hasn’t always been the driving force in this equities accumulation pattern. As gold prices rise, because of a base of support due to somewhat static costs versus increase in the product selling price, so does Yamana Gold’s abilities to generate profits. The costs to mine gold do increase as oil prices increase and labor costs due to foreign exchange rates vary, but if the underlying product increases at a higher percentage than the increase in costs, additional profits are available.
With gold prices reaching record highs of over 1200 dollars an ounce, expanded revenue for unhedged miners are sure to follow. I expect Q2 numbers in revenue in Yamana to have an increase due to this gold surge. The percentage increase from $800 to $1000 isn’t as great as from $1000 to $1200, but most of this added value comes with less and less costs attached to the higher price. Why do costs increase as gold increases? Well it doesn’t necessarily, but when gold increases certain economic conditions are usually in play that increase gold miners costs of production of the metal. These include mining countries with a strong local currency or having the falling dollar cause a rise in oil prices. These are a few conditions that high gold prices can affect the cost side of business.
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