Barrick Gold Corporation (USA) (ABX), Newmont Mining Corp (NEM) – Gold Miners: Still a Good Short

An uncomfortably small margin

Even worse, these companies may not even be profitable in the near future. Goldman Sachs Group Inc (NYSE:GS) stated that, in order for the gold mining industry to be profitable, the price per ounce for gold must remain above $1,200, a scary thought considering gold is now below $1,300 per ounce. With central banks holding roughly 16.5% of the world’s gold supply, a continued sell-off would have detrimental effects on the price of gold, and the increase in supply from lessened reserves would certainly outweigh the decrease in the supply of gold from fewer opened mines and working miners. A short in any one of these companies could be highly profitable for the investor, especially if the price of gold does in fact end up falling below $1,200 per ounce.

Conclusion

As they stand now, gold miner stocks are positioned for a much larger price drop. If you buy shares of a gold miner that is releasing earnings soon, disappointing numbers for revenue and profit, based on a lower sales price for gold, could push stocks down even lower. Even more, if the price of gold ends up dipping below $1,200 per ounce, gold miners will get destroyed in the stock market as they are no longer profitable.

The article Gold Miners: Still a Good Short originally appeared on Fool.com and is written by Jake Pompeo.

Jake Pompeo has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Jake is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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