Why Are Short Sellers Avoiding These Two Gold Stocks?
Is the global economy recovering? While the economic indicators aren’t exactly robust, that hasn’t stopped some investors from seeing the silver lining. Gold, held in exchange-traded funds (ETFs) and other gold-related equities, is primed for the biggest monthly drop ever as investors, sensing the global economy is in recovery, are selling off bullion.
And it’s selling fast. Gold slipped into bear-market territory in mid-April, on the heels of improving global growth and weakening fears of rampant inflation. On Friday, April 12 and Monday, April 15, gold prices sank 14%, the biggest decline in 20 years. And on Tuesday, April 15, gold hit an intraday low of $1,321.50 per ounce.
You can’t keep a hard asset like gold down, though. Over the last couple weeks, the price of gold has rebounded and is currently trading up more than 11%, near $1,472. That’s still 19% below the $1,559 per ounce gold was trading at on April 11, the day before it was trounced.
Gold still has a long way to go to make up for the mid-April rout. At depressed prices, though, many astute investors realize some gold companies are sitting in attractive ranges—the operative word being “some.”
The path to recovery is still fraught with challenges. With global production costs currently hovering around $1,200 an ounce, a further price depreciation could send some of the lesser financially stable gold producers into a tailspin.
One indicator investors like to consider when looking at stocks is the number of short sellers. Short sellers are those who are betting a company’s share price is going to fall.
While no single indicator can predict a company’s success or failure, a large number of short positions means there are a lot of investors hoping to profit from further declines.
At the same time, the amount of short selling spotlights which companies the investing community believes are financially sound enough to weather any further storms.
Pan American Silver Corp. (NASDAQ/PAAS; TSX/PAA) saw its share price tumble almost 25% in mid-April, from $15.50 on April 11 to a low of $11.78 on April 18. While the company’s share price has rebounded, it is still trading off 15% from the mid-April plunge, near $13.20. It has 151.5 million shares outstanding; just two percent are held by short sellers.
On Thursday, April 11, B2Gold Corp. (TSX/BTO) opened trading at $2.95; by April 17, the company hit an intraday low of $2.00, wiping 32% off its value. Currently trading near $2.50, the company has rebounded 26%, but it still has a ways to go. It has 646.1 million shares outstanding and short-selling interest of 772,993 shares, or just 0.1% interest.
In addition to the company’s strong financial position, its first-quarter results may have something to do with keeping the short sellers at bay. On April 23, B2Gold reported record first-quarter revenues and gold production, noting that in spite of the recent dip in gold prices, the company continues to advance its development and exploration projects. (Source: “B2Gold Corp. Reports Record First Quarter 2013 Gold Production and Revenue,” B2Gold Corp. web site, April 23, 2013.)
Granted, any further downturn in the price of gold would not be a boon to the companies listed here; they just have a better chance of still being around than the less financially established firms.
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