EGO: A Particularly Healthy Gold Stock

February 19, 2009 | By: Hard Assets Investor

We wrote about gold stocks last week ("Whither Gold Stocks") , waving a $38 red cape for the Market Vectors Gold Miners ETF (NYSE Arca: GDX) in front of a four-month-old bull market. Yesterday, as gold picked up $10, GDX's horns got close. Very close.

Intraday, the ETF traded as high as $37.80 before falling back to close at $37. The fund is working itself into the target area nicely, thankyewverymuch. One of GDX's better-performing component stocks, in fact, might be a herald of the fund's future.

El Dorado Gold Corp. (NYSE Alternext: EGO) has risen 11.4% this year, just barely ahead of the 9.2% gain posted by GDX. Oh sure, a 2.2% performance difference may seem significant now, but given the relatively low volatility in both securities, the spread seems unlikely to widen much. Barring something unforeseen, of course.

Gold Miners ETF (GDX) vs. El Dorado Gold (EGO)

The good news for EGO and, indirectly, GDX, is EGO's cost structure. For fiscal 2008, EGO's cash cost of gold is only $257 an ounce. Volatility in bullion prices is least likely to impact EGO, compared to its peers.

E-G-O could spell peerless performance for GDX.

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