The impact of gold price on the value of gold mining stock

Abstract

The value of a gold mine is shown to be a function of the return on gold, production costs, the level of gold reserves, and the proportion of assets unrelated to gold price risk. Assuming that forward gold prices are the market's unbiased expectations of future spot prices, a model is derived that estimates the theoretical gold price elasticity of gold mining stock. The model shows that if a company's primary business is gold mining, the gold price elasticity of the company's stock is greater than one. Using monthly data over the ten year period 1981 through 1990, the model is tested for a sample of 23 publicly traded gold mining companies. Direct all correspondence to: Laurence E. Blose, University of North Carolina, Deparbnent of Finance and Business Law, Charlotte, NC 28213. Copyright 0 1995 by JAI Press, Inc. 1058-3300 125 Notes: 1. Model Ri = ~0 + ~1 RG. Significant at a level of .05 (one sided test). (one sided test). The number in parentheses is the f-statistic for the hypothesis that the coefficient is equal to zero. 2. Significant at a level of .Ol 4.The White (1980) test rejected the hypothesis of homoscedasticity; therefore, f statistics were calculated using the estimated asymptotic covariance matrix under the hypothesis of heteroscedasticity. For details see the ACOV option in the Proc Reg statement of SAS.

Conditional correlations in the returns on oil companies stock prices and their determinants

“…Blose and Shieh (1995) examine the impact of gold price changes on the returns of gold mining stock. The authors derive a model where the gold price elasticity is related to the level of gold prices, the quantity of reserves, the cost of production and the amount of nongold activities, and the gold price sensitivity of a mining stock is grater than one.…”

Are gold bugs coherent?

“…MacDonald and Taylor (1988) provides an early examination, of 20 South African miners, and finds that there is a statistically significant positive relationship between mine share prices and gold, with asymmetry evident in a greater relationship for higher cost miners. This is also the case in Blose and Shieh (1995), for 23 US miners and for australian miners in Faff and Chan (1998) and for US miners using more recent data, as in Borenstein and Farrell (2007). OConnor et al (2015) however finds that that the gold price leads production costs suggesting that an examination of gold mining companies as alternatives is not a useful path.…”

Gold and Oil Prices Versus Stock Exchange: A Case Study of Pakistan

“…Blose and Shieh [1] in their article they are trying to explore that Gold is the portfolio diversifier and stock market is the macroeconomic risk. For this purpose they used probity economic model and take the data from 1998 to 2012.…”

“…There are three main researchers related prediction of economy growth. According to Blose [1] have proved that oil prices have on the economic growth of India, there are three main researchers related to explore the impact of oil prices on the stock exchange.…”