The stocks from this sector have been exceptionally volatile over the last 4-5 months. There was a strong rebound from the June lows which has met with resistance at higher levels, but the lower levels have provided support so far. The industry has taken steps to reduce cost and postpone capital expenditure. The prices are not expected to shoot up suddenly, so it makes sense to remain realistic by operating only those mines which are viable. An article on seekingalpha recently stated that there could be deep value in the sector if one views it from the long term perspective. The gold prices may have seen a bottom at around $1200 per ounce. Even IAG has been successful in reducing capital and operational costs. Even the all-in-sustaining and cash cost guidance was reduced, though the costs still remain high compared to some of the peers. However, the valuation is attractive as the stock is trading at half its book value. Despite the 15% rise over the last few days, the dividend yield is extremely high, and the scope for capital appreciation does make a case for investment. Even the leverage is within reasonable limits if one considers the cash position. HSBC has recently upgraded the stock to overweight with a price target of $6.20. There have been some upgrades for others also which indicates that the analysts may be turning a bit positive on the sector. There are also signs from smaller companies which indicate increased optimism of the managements. Pershing Gold (PGLC), a development stage company, recently announced that it is positioned to start production from its facility in Nevada as per plans. These signs do make a case for long term investments. However, stock selection will be the key to maximizing returns and minimizing risks.
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