Firstly Yamana was a victim of seasonal selling. The “sell in May and go away” crowd sold off Yamana stock, putting downwards pressure on the price. The lack of buyers during the summer doldrums meant that there was little support for the price as it began to drift south. Secondly, many investors were put off by Yamana's takeover bid for Meridian Gold. Growth for growth's sake is not always the best option and some investors felt that perhaps the deal was being made for the wrong reasons, so again, the stock was sold off. Thirdly, the credit crunch in August meant that hedge funds and investment banks were forced to sell literally anything they could to generate cash for margin call payments. So Yamana got hit again.
Yamana fell to $8.50, but we did not signal a sell or a stop as we were confident that Yamana was a good enough gold mining company to come through all of the above and move higher. Now it has broken that down trend and formed a new uptrend, rising to $13.91, a 60% rise in just a few months.
Past performance is by no means a guide to future success, but Yamana has been performing very well indeed over the past few years. In 2006 the stock virtually doubled and it comes top of its peer group in terms of performance. This is a testament to the management at Yamana and the excellent job they have done in promoting the company and attracting investment.
We feel that Yamana will continue to be a good investment vehicle for riding this gold bull, even if it is due a small drop in the short term. Longer term however Yamana should do very well as the gold prices move to over $1000.
Yamana Gold trades a AUY on NYSE, YRI on TSX and YAU in London.
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