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Less-Than-Shiny Gold Miners

Stocks in this article: GS NEM ABX

His reasoning is based on the massive leverage that many futures contracts are traded on "up to 16 to 1 -- just a 6.4% rally in the gold price would obliterate all the capital of those fully leveraged contracts," Krauth postulates.

Just a small percentage rise in the gold price may lead to a massive short covering, "...which would feed on itself, pushing gold still higher and faster. Short covering rallies can lead to violent upside surges," he adds.

It's not hard to agree with his feeling that at the present time the negativity about gold hasn't been this great since gold's bull market began in 2001.

"After the extreme bearish sentiment of 2008, gold rallied 70% in a little over one year" Krauth reminded readers.

The View from a Contrary Perspective

There are only two things that get less respect than gold. Junk food and gold stocks are not high on any investor's food chain at the moment, and I'm not sure junk food isn't more venerated.

Take the world's largest gold producer Barrick Gold (ABX). Shares of Barrick closed on Monday at $18.14, in spite of an analysis published by Two Fish Management valuing the company's stock above $44 a share.

Barrick estimates its gold production this year will be 7.2 million ounces, over two million more ounces than the next biggest miner, Newmont Mining (NEM).

There are a number of chinks in its armor. Its net debt is around $13 billion versus Newmont's $5 billion. Plus, Barrick has earned a sour reputation for its capital expenditures and shaky leadership.

Let's take a look at both of these two famous gold producers, starting with a 1-year chart of ABX. The chart also includes its trailing twelve month (TTM) EBITDA earnings.

ABX Chart ABX data by YCharts

Barrick's earnings and sales growth depends on the price of gold staying afloat. In a recent interview CEO Jamie Sokalsky proclaimed, "This company has a more disciplined capital-allocation framework and is focused on cost control, portfolio optimization return on investment and free cash flow."

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