By Sasha Cekerevac
Business 2 Community
The drop in the price of gold bullion has surprised many investors. With the level of monetary stimulus provided by the Federal Reserve and other central banks, many had believed that gold bullion would continue rising. The drop has not only impacted investors in gold bullion, but those in the associated mining stocks as well.
While central banks have been buying gold bullion, investors in exchange-traded funds (ETFs) have been selling a massive amount. The total amount sold by investors in ETFs is approximately 467 metric tons so far this year.
At this point, mining stocks have become quite oversold in relation to the price of gold bullion, according to my analysis. There is the potential that this spread will narrow over time. It is true that gold bullion mining stocks face significant headwinds, specifically higher costs, but it appears much of this is now priced into the stocks. To combat the higher costs with the combination of lower gold bullion prices, many mining stocks are reducing production and cutting costs.