IST: Market Valuing Gold Stocks On Cash Flow, Not Assets
In a recent post entitled Gold stock mystery, I had wondered that with the price of gold bullion nearing all-time highs, why were gold stocks underperforming?
The main basis for my analysis was an option-based model for gold mining companies, where a gold mine could be modeled as a series of call options on gold, with the strike price being the cost of production.
Production costs are rising
The option-based model showed that gold stocks should be near all-time highs and enjoying superior leverage to gold, except for one small detail...
Back in 2006 when I started modeling the gold mining stocks, the cash cost of production was around $250/oz.
