Gold Prices, Exchange Rates, Gold Stocks and the Gold Premium

Garry Twite
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Garry Twite: Australian Graduate School of Management, UNSW, Sydney, NSW 2052. Email: gtwite@agsm.edu.au

Australian Journal of Management, 2002, vol. 27, issue 2, 123-140

Abstract: This paper studies the exposure of the stock prices of Australian gold-mining firms to changes in gold prices and the valuation effects of gold price exposure. Gold-mining firms have significant gold price exposure; the price of the average gold-mining stock moves 0.76% for each 1.00% change in Australian-dollar-denominated gold prices. Evidence from the behaviour of stock price sensitivities suggests that gold-mining firms can be represented as a portfolio of gold assets and embedded real options. Simple discounted cash flow models systematically underestimate the price of gold stocks. The evidence suggests that the valuation error is due to both the failure of discounted cash flow models to reflect managerial flexibility that is embedded in the operation of gold mines and the misuse of discounted cash flow techniques.

Keywords: GOLD STOCKS; GOLD PRICE; REAL OPTIONS (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:27:y:2002:i:2:p:123-140

DOI: 10.1177/031289620202700202

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