Tickers in this Article: ABX, NEM, GG, KGC
Amid all on the carnage on global financial markets, gold stands out as one of the few assets that has made money for investors. So far this year, the precious metal has gained over 8% in value, and at its current price of $918 an ounce, stands at a two-and-half month high.

Having briefly thrust through the psychologically important $1,000 an ounce barrier last March, when the ongoing credit crisis first began to raise concerns about the stability of the U.S. financial system, gold subsequently fell back to a low of $740 in early September. However, the accelerating credit and financial market turmoil since then has breathed new life into bullion over the past month.

With equity markets in free-fall mode, is the stage now set for a decisive penetration of the $1,000 barrier? (To learn more, read Using Technical Analysis In The Gold Markets.)

Central Banks Gold Hoarding a Strong Bullish Sign
One critical factor that propeled bullion higher is recent evidence that the world's central banks are hoarding gold. In just the past week, the cost of borrowing gold, or the 30-day lease rate, has increased threefold to 2.68%; the highest level since May 2001. As a rise in this rate has historically preceded a jump in the price of gold itself, precious metals analysts now see this a bullish sign. In a recent press briefing covered by Reuters, commodities analysts for Barclays Capital forecast that gold would top $1,000 an ounce within the next few months as increased fears of a global economic downturn prompt further moves by nervous investors into the perceived safety of bullion.

Collectively, the world's central banks have a bullion stash of roughly 30,000 tonnes, or about 20-25% of the above ground inventory. With 8,100 tonnes, the U.S. has the largest hoard, with Germany's Bundesbank taking second place. The Bundesbank has indicated it won't be selling any more gold, and other European central banks have also reduced sales.

Gold Stocks Lagging Bullion's Gains
The recent jump in bullion prices has yet to be fully reflected in share prices of the some of the world's largest gold mining companies. Relative to their 52-week highs, the shares major producers like Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Goldcorp (NYSE:GG) and Kinross Gold (NYSE:KGC) are down 35-40%.

If Gold Hits $1,000, The Cash Begins To Flow
Apart from general market turmoil, another reason why the gold miners shares have dipped to the extent they have is that they remain highly leveraged to fluctuations in the price of gold. But this leverage can work both ways.

The extent of this leverage was recently quantified in a report by Canadian investment dealer RBC. The report analyzed the increase in cash flow per share estimated for 2009 realized by the major gold miners, given an assumed 25% rise in bullion prices from $800/oz to $1,000/oz. In the case of producers like Newmont, Barrick, Kinross and Goldcorp, the projected increase in cash flow was between 43-51%; a leverage factor roughly twice that of the gain in the underlying gold price. Assuming price cash flow multiples remain constant, then a further 9% gain in bullion prices resulting from a move from the current price of $918 an ounce to $1,000 would imply potential price gains of about 18% on average for the major gold mining shares. (For more info about cash flow, read Analyze Cash Flow The Easy Way.)

The Final Word
With the ongoing market turmoil clearly signaling the onset of a global recession, and with close to zero returns now available for cash, gold's relative attractiveness is likely to increase. That could make gold mining stocks a relatively safe investment over the next few months.

To continue reading about gold investments, see Does It Still Pay To Invest In Gold?

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