This page has been archived and commenting is disabled.
The Surprising Truth about the Volatility of Gold & Silver Mining Stocks
Though I’ve been blogging about the merits of gold and silver for almost six years now, the one characteristic that most investors fail to understand, by far, are the reasons behind the periodic volatility that afflicts gold and silver every year. In the commercial investment industry, thousands of financial consultants worldwide try to manipulate their clients into making terrible decisions through the use of two emotions – fear and greed. Through appealing to clients’ greed, financial consultants are able to deceive their clients into believing that overvalued stock markets propped up by computerized, rigged HFT algorithms and the Central Bank QE program by-product of inflated currencies are instead, really undervalued. Through appealing to clients’ fear, financial consultants are able to keep their clients out of volatile but profitable asset classes such as gold and silver by selling them on the erroneous principles of beta and by convincing them that increased volatility means increased risk. Thus, financial consultants are able to convince clients to engage in behavior that is a winning proposition for their companies but a losing proposition for their clients – remain invested IN general stock market indexes and paper gold and paper silver products (largely ETFs), but remain OUT of physical gold and physical silver assets and OUT of mining companies that own physical gold and physical silver assets.
The number one global myth in the investment world is the strategy of diversification. Diversification is nothing but a sales strategy designed by commercial investment firms to arm legions of clueless, incompetent financial consultants with a strategy that helps them pry hundreds of millions of dollars of fees from the checkbooks of wealthy clients. I’ll provide weight to my contention that diversification is nothing more than a sales scam and not an intelligent investment strategy with some cold hard facts at the end of this article. The number two global myth in the investment world is the belief that volatility is directly correlated with risk. On the surface level, this seems like a logical conclusion to draw from volatile assets. If assets rise and fall within several standard deviations of the norm, then massive speculation must be occurring within these asset classes and investors must not be investing in such asset classes based upon fundamental values, right? Not necessarily. With gold and silver in particular, most investors do not consider another possibility behind the volatility that affects these two precious metals – banker manipulation and illegal banker fraud. If one understood that banker manipulation was the largest singular factor responsible for the volatility that afflicts gold and silver every year, then the perception of gold and silver as not only solid investments but as the only acceptable forms of money would gain serious momentum versus its perception among the masses as barbarous volatile relics to be avoided.
In any event, once the investment industry knew that their propaganda campaign of equating volatility with risk had successfully injected this belief into the psyche of investors worldwide, bankers merely began introducing periodic steep bouts of volatility into gold and silver prices as their weapon to convince investors not to purchase precious metals, and instead, to purchase much riskier stocks that traded on the major global stock market indexes. In fact, in this article I wrote in August of 2006, I stated that the first necessary step one must take on the road to building wealth is to shed oneself of all the investment beliefs one has learned in school and from the commercial investment industry.
When I first started blogging in 2006, I also warned investors as to why they should not believe the commercial investment industry propaganda of “volatility equals risk”.
When I claimed that steep bouts of volatility in gold and silver and PM mining stocks were primarily created by banker manipulation more than five years ago, there was very little acceptance of my theories and most investors and financial journalists chose to ignore the very substantial supporting circumstantial evidence. Instead, the mass financial media chose to actively marginalize such theories and tried to discredit and dismiss me by labeling my theories as “conspiracy” theories. When US Central Bank governors also publicly pronounced that the Federal Reserve never manipulated the price of gold and was in fact even disinterested in the price of gold, naive acceptance of Central Bankers' lies further fueled the media's framing of the truth as conspiracies. This, despite US Senator Ron Paul’s recounting of a meeting in which then US Federal Reserve Chairman Paul Volcker walked into a room and demanded of a staffer as the very first piece of information he wanted to know, the price of gold that day. This, despite former Federal Reserve Vice Chairman Alan Blinder’s testimony that “the last duty of a Central Banker is to tell the public the truth.”
Today, given the prominence of accusations about Federal Reserve, HSBC, JP Morgan, Goldman Sachs, et al participation in the manipulation of gold and silver markets by US Senator Ron Paul and prominent industry figureheads Don Coxe, James Turk, Eric Sprott, and GATA, the ones that sloughed off my accusations of banker manipulation of gold and silver markets as conspiracy rants from five years ago now appear to be the naïve, unsophisticated ones. Today, Central Bank manipulation of gold and silver prices is now accepted as part of the inner workings of the gold and silver markets by any analyst that possesses any level of credibility among the most seasoned gold and silver investors. Thanks to the efforts of men like Ron Paul and the organization GATA, many people now realize that Central Banks serve the interests of the moneyed elite and no one else, a topic that I blogged about nearly five years ago as well.
Due to decades of misinformation deliberately spread by bankers all over the world, while the gap between reality and perception about precious metal markets has closed significantly, a large gap between reality and perception still exists in regard to gold and silver mining stocks. As recently as a month ago, the internet cyberworld was inundated with articles about a “historic end” to the viability of PM mining stocks. The expressed consensus was that since mining stocks had failed to rise with the underlying prices of gold and silver futures during the first quarter 2011, this was an obvious sign that mining stocks had topped out and would crash from here on out. Ironically, the commercial investment industry propaganda machine had churned out and disseminated the exact same storyline in January and February of this year as well. The reason I recall this so clearly is because I specifically wrote an article to rebut the storyline about the death of the gold and silver mining sector back on February 9th. However, despite my strong opinion that gold and silver mining stocks had not yet topped out, my belief did not preclude my caution against banker manipulation schemes executed against mining stocks. In fact, just a few weeks later, I warned against a banker take down of gold prices that indeed materialized after my warning.
It is my strong belief that Central Bankers that are so preoccupied with trying to suppress the price of gold and silver would not ignore the opportunity to illegally intervene and suppress the price of precious metal mining stocks as well. For example, Central Banks have enlisted the aid of corrupt commercial banks to invent gold and silver derivative products and therefore create massive paper supplies of gold and silver at the same time physical supplies are becoming increasingly scarce. If we look at the chart below, you can clearly see the recent underperformance of gold and silver mining stocks that has led the financial media to inundate the public with declarations that mining stocks, as an asset class, are dead weight and should be avoided at all costs.
However, if you remove the emotion of “fear” from this conclusion and if you inject the explanation of deliberate banker price suppression schemes executed against mining stocks, a completely different take on the asset class of mining stocks will emerge. You may just startlingly conclude that the “best in class” mining stocks are grossly undervalued and a great buy this summer season whether or not the bottom has been put in for the summer, versus the commercial investment industry conclusion that they are dead weight. If you look at above chart I’ve posted of the Philadelphia Gold & Silver mining index, you will note that this index was at the same level just a few weeks ago in mid-June as it was in mid-September of 2010. Despite the flat performance of the Philadelphia Gold & Silver mining index during this duration, by mid-June 2010, silver had risen 74% higher than its mid-September 2010 $20.44 an ounce price and gold had risen nearly 20% higher than its mid-September 2010 $1,270 an ounce price.
To illustrate that investing in volatile mining stocks need not subject an investor to an emotional roller coaster ride, note in the above chart, the several points in which I pointed out that mining stocks were undervalued and in which I pointed out that they were likely to be hit by the bankers to the downside again.
In the links I provided in this article, you can see that I publicly blogged about the first two points in the chart above, but that I reserved notification of the third “cash-out” point in the chart above for my subscribing members only.
In conclusion, I hope to impress upon you the following. Bankers deliberately manipulate and introduce volatility into gold and silver mining stocks specifically
(1) to keep people out of these stocks and out of anything gold and silver as they know people equate volatility with risk;
(2) to induce people to panic sell out of mining stocks during rapid downward volatile periods they create as a mechanism to support their immoral fiat currency banking system; and
(3) to keep people invested in general stock market indexes so they can continue to collect fees even if they end up destroying the wealth of their clients.
As you can see from the above chart, the volatility of the mining stocks necessitates the use of an active management style, the antithesis of widely accepted and adopted diversification strategies, to optimally benefit from being invested in this asset class. From mid-June 2007 until the end of the first quarter 2011, if one had invested in the HUI Gold Bugs Index or the Philadelphia Gold & Silver Index and had elected to ride out every scary bout of volatility in the past four years, one still would have been rewarded respectively with a cumulative 73.18% and +59.71% return! Compare this to the respective returns of the US S&P 500, the ASX200 and the FTSE100 over the comparable investment period of -13.53%, -10.90% and -22.70%. Thus, the investment industry labeled “volatile and risky” gold and silver mining indexes returned a hugely positive +59.71% and +73.18% return over the past four years while the industry labeled “less volatile and safer” global market indexes all produced double digit losses. From the recent negative press that the financial media has given gold and silver mining stocks recently, if you didn't know the facts, one might have believed that gold and silver mining stocks had massively underperformed, instead of massively outperformed, the major global stock market indexes in the past four years! (and even when one incorporates the massive hit gold/silver mining stocks took in 2008.)
This is all you need to know that the commercial investment industry is more interested in milking their clients for fees and spreading lies, deception and propaganda than in actually acting to preserve and build their clients’ wealth. In my opinion, “safe diversification” and “less volatile” strategies are nothing but pure absolute rubbish invented by and regurgitated from the mouths of commercial investment industry bigwigs.
Furthermore, incorporate a keen understanding of banker manipulation schemes and the understanding of when to enter and exit gold and silver assets and when it is necessary to ride out volatile periods without panic exiting, and one can easily add a great deal of “extra” performance to even the stellar returns of the HUI Gold Bugs Index and the Philadelphia Gold & Silver Index.
Simply put, if you trust bankers with your family’s financial future, continue holding fiat currencies and heeding the propaganda of commercial investment industry financial consultants. However, if you lack confidence that the Pound, Yen, Euro and US Dollar will fail to hold their purchasing power over the next decade, a feat that they have failed to accomplish since they were conceived of by Central Bankers, then it’s far beyond the time when you should have started investing in physical gold, physical silver, and best-in-class gold and silver mining stocks. I do admit that commercial investment industry employees have an amazing capacity to cry wolf for years on end and still maintain the trust of their clients. However, armed with the knowledge of this article, it’s time we all stopped falling victim to their misinformation campaigns.
About the author: JS Kim is the Chief Investment Strategist
for SmartKnowledgeU, a fiercely independent investment research and consulting
firm that focuses on precious metal investments as a means of wealth
preservation against the banker’s path of fiat currency destruction. From its launch in June 2007 to the end of
the 1st Quarter 2011, the SmartKnowledgeU Crisis Investment
Opportunities newsletter has returned a cumulative +200.96% return (in a
tax-deferred account), significantly outperforming the +59.71 and +73.18% return of the XAU Philadelphia Gold and Silver Miners Index and the HUI Gold Bugs Index. Click on this link to follow us on Twitter!
»
- advertisements -
Smartknowledge
Great article: hard hitting, sharp as a tac, very honest and instructive..
Big Thanks ;))
timely too!
Great article thanks!
PSLV, GPL, EXK.
Not my idea. Just overheard in an elevator.
I read a lot of comments here trying to justify how energy and other production costs are factors in the miners' depressed share prices, etc... but to those points I must counter with the argument that if you believe that increased production costs lead to supressed valuations on producers during periods when their product is near all time highs, then using the same logic you must also conclude that rising energy costs and all time highs in corn are also bearish for corn producers...
Which market is acting correctly- corn producers, or the PM producers...?
Miners are comparatively cheap- Therefore they must be bought.
Anyone care to list what they consider " best-in-class gold and silver mining stocks"? Thanks!
Like a kid in a candy store
https://www.kitcomm.com/showthread.php?t=68585
Shebacill - your only post in 15 weeeks at ZH is a list of penny stocks!! ....trying to flog something?
They are Protecting America! from you evil Gold Buyers who mean to destroy this Great Police State that has been Created by the Lobby Whores and their Corporate Pimps!
http://www.youtube.com/watch?v=d5tB35le3w0
All of YOU! are Threats to the Police State! Threats to the Corporate Wonderland that is the United States of America!
http://www.cdt.org/blogs/harley-geiger/us-intelligence-reports-continue-confuse-political-dissent-terrorism Everyone on Twitter! Left or Right is a Home Grown Terrorist as spelled out by Home Land Security see link and Official Report(s).
May the FBI! (who want those cushy Private Security Banking Jobs) be a Plague Upon Your House!!
"That includes burglarizing my former psychoanalyst's office (for material to blackmail me into silence), warrantless wiretapping, using the CIA against an American citizen in the US, and authorizing a White House hit squad to 'incapacitate me totally' (on the steps of the Capitol on May 3, 1971)... But under George W. Bush and Barack Obama, with the PATRIOT Act, the FISA Amendment Act, and (for the hit squad) President Obama's executive orders. [T]hey have all become legal."
FOIA Litigation for Accountable Government https://www.eff.org/issues/foia
"Unfortunately, the PATRIOT Act did not include sufficient checks to protect innocent Americans” Senator R. Durbin (IL) http://bit.ly/guAj0C<grins>
Any one have a suggestion of gold/silver mines in the US, Canada, or Australia that would be interesting research and what sources to go to?
How far down the rabbit hole do you want to go?
Most professionals I have found have degrees in geology, physics, industrial arts and construction. In the US, the USGS has a wealth of historical information available to those with access. Some of the "interesting" research I've found is in the colorful first hand tales from old timers. When you stop and think about it, if you had a hole in the ground where you could go and pull out hi grade ore with little or no effort, would you tell anyone about it?
On the other hand, gold mines have been described as a hole in the ground with a liar on either end, or as a hole in the ground with two guys at the entrance, one trying to sell it and the other trying to steal it.
Hey BM (heh), you got the sound bytes down!
Comstock Mining Inc. Nevada,USA. Kaminak Gold Corp. Bayfield Ventures Corp. Canada. Three to start. Research and good luck. They have been good to me. Stay long.
One would think that mining stocks would be excellent. Even the resources alone far outweigh the market stock price in most cases- after costs extraction. But, I have a had a terrible run of hedge funds making hostile runs at some of my stocks- setting themselves up for the huge explosion in gold. Unfortunately, the instability makes the stock price tank.
One company, Century Mining, is in an attempted takeover by a Russian guy using a sham front company called White Tiger Gold( has no resources.)
So, that stock which had triple since I bought it and fell apart. They want to give me fake stock of white tiger for 3 of my real Century which has a huge resource. Since the Ruskie is a major shareholder, he has a huge vote- and has rigged the board.
So, watch which ines you buy. 50% of these junior miners are scams or have problems
Definitely do the Due D' definitively. Right.
Like riding a bike up a hill: you've got to earn it.
The main factor in mining stocks is the cost of Government. Any and all miners are subject to the nationalization of it's mine and workers. It's stock price will go to zero the instant that happens. Any and all mines are subject to nationalization by the country's government it's located within. Think it could never happen in America or any other government in the world? Don't kid yourself! Your mining stocks are never safe from any government takeover. A government with a military can do anything it wants when necessary for it's self protection.
While your point is well taken, doesn't the same apply to ANY corporation? Esp. say, oil companies?
Of course!
But to my knowledge nationalization is slightly less likely to happen in a nation carrying a high, yet still reasonably serviceable, amount of debt. Especially if they are a sort of faux democratic republic, 'Constitutional Monarchy' or some other such nonsense, with foreign funded/chosen/installed political leaders (eg Canada).
Danger is always there that amidst a dire economic crisis their populations might suddenly become aware of the parasites they're hosting and endeavour to effect change, natch, but "... never underestimate the predictability of stupidity."-Bullet Tooth Tony
OTOH, if you invest in a 'going concern' that has already been nationalized, located in a country without any national debt as a result of such success, this particular risk is pretty much absolutely negated.
This is the real world, national resources are being nationalized.
Always nice to get a reminder on precious metals stocks. Author is too narrow and shrill. Still waiting for his refutation of diversification, the fact that he outperformed XAU over some period is not one.
"Mining companies use lots of energy. Higher costs lower profits. Mines do not last forever. "
And this explains everything? Can you provide some support for that?
Barrick CEO, explaining cost increase from $400 to $900 for new mines.
Gold Resources is about 1yr old (of actual production) and its PM costs are closer to zero due to the amt. of zinc and other base metals present on the property. Just gotta know which ones to pick, huh?
Yep.
Barrick: you need to look at their history--so massively short gold, it was said by Fekete that they were a hedge fund masquerading as a mining company. But the suppression of gold prices, and trashing of junior miners stock prices allowed them to pick up lots of properties in the 90s for a next to nothing. It was a great day when they had eat it and buy back a good part of their short book. Not all of it, as I recall, only the part they didn't believe they could delivery into.
So the biggest reason for ABX having income statements might be their need to delivery gold at, say, $600 or less. I haven't looked at their financials for years and don't intend to. But for anyone seriously considering investing in that company should ferret out the derivatives, hedges, forward delivery obligations with care.
TRX is ripe for a great year, imho. Lots of Tanzanian gravels with a production cost likely closer to $100 than $200. Nearing production, no debt, no hedges, great relations with the locals and government and 5% or 6% of float short -- which will be entertaining when the covering comes.
The points raised by the Barrick CEO have been raised by many others. The new mines are essentially tearing down and sifting a mountain, not so much veins. Enter Caterpillar.
Their is also a political problem as countries nationalize their resources.
So invest in a company that has already been nationalized. Now you have one less thing to worry about.
Happy Fifth of July Venezuela!
Generalization. But that's fine. If you actually want to invest in mining companies you have to do a lot of research.
great relations with the locals and government...
I'm not sure this particular nugget of information can be overemphasized whenever PM mining company evaluations are made. Can one define "great"?
When the goods start flowing these relations are tested. It's at this point the rule of law is often placed on the alter of "expediency".
Long personal history there. Also, TRX is literally partners with the TZ govt mining company on the Buckreef project, 55/45 with TRX controlling. Hiring local artisanal miners and training them to use equipment. ABX leans more towards shooting them: http://protestbarrick.net/article.php?id=369
Also Joseph Kahama is currently president. He is the son of one of the founding fathers of Tanzania. The TRX chaiman helped re-write the TZ mining tax laws, shifting to a gross tax. Prior to that it was "net" which meant that Tanzania got very little -- especially since Barrick was (and is) a very big player and their "hedges" were one of the items "netted" out before taxes were paid.
The TRX chairman helped re-write the TZ mining tax laws...
This illustrates the point. Once the goods start flowing and contractual terms start actually to be fleshed out, (net and gross), governments exercise their sovereignty and re-write. This is not a statement regarding the right / wrong / morality of either party, it's just an observation.
Call it a stress test if you will, it's just once the device is plugged in and turned on, sometimes it works and sometimes it blows a fuse.
Your points can be said of any successes, in any industry, on any continent. Excepting NA, of course, where dumbass Cdns will fall over themselves bending over backwards to give away valuable natural resources below cost in exchange for a few pennies now just so they can spend them later cleaning up the mess left behind.
Hehe <facepalms> Gotta love 'em.
OK. I've been long the company for years and keep up with it daily. We'll see how that works out. All situations in 3rd world mining are specific. It is useful to comment about all the things the could go wrong and if you plan to invest you should satisfy yourself on each an every one. There is no absolute certainty; there are very acceptable risk/reward ratios for those who do the work.
Barrick, good one!
Fuck paper.
If you're looking to build ounces without dirtying your hands on paper, a placer mine can get the job done Snowball (as long as you don't mind getting your hands dirty).
ditto that.
Mining companies use lots of energy. Higher costs lower profits. Mines do not last forever.
Basics, not banks, are the most likely culprit.
Regulated futures markets absorb manipulation by having a long for every short.
Sometimes hedging can seriously hurt profits in up markets.
There is a rational, scientific reason for the sun rising, rather than recurrent manipulation by the dark forces.
Your argument is the same one as the peak oil theory somehow proving that manipulation in the oil markets doesn't exist. If energy costs and mine depetion were the true causes of underperformance in the PM mining stocks, we would see a similar effect in all types of miners, not just PMs.
You swallowed the wrong pill.
PS: The derivatives market is the prime vehicle for manipulation, so your theory that regulated futures markets absorb manipulation is hilarious.
"Mining companies use lots of energy. Higher costs lower profits. Mines do not last forever."
These factors are all supply limiters. If the breakeven price for "green field" gold mine development is $2000/oz, supply will leak downward and push price up. Same dynamics in play for crude.
Crude is the the alpha asset. To varying extents, all the other commodities will follow. The reliance on artificially low cost crude underpins everything. It's the only reason we have 6B people and 3B overfed pets on this rock.
Yes but this is binary thinking. What you say is correct but does not preclude manipulation. If you accept PM manipulation (a slam dunk in my opinion), then it stands to reason that miners will be manipulated as well, and by the same parties.
The amount of short interest in some mining stocks is outrageous considering the uptrends in PMs.
The factual information is indicative, but making the leap to what the motive might be is always tricky. However, given the amount of evidence, it is at least a strong possibility.
Being reflexively dismissive of collusion is as bad as being reflexive in seeing conspiracies. Information must be considered.
EDIT: That said, I heard an interesting fact about some of the oldest mines requiring miners to go down 4 km and across 7 km to reach the vein. This is similar to the "Deepwater Horizon" (oil), but for gold. Clearly PM prices have to rise for this type of mining to be economically viable. So yes, there are forces that are causing miners to lag PMs, but again, this does not preclude manipulation by central bankers.
Discounting central bankers influence reflexively is naive.
There is a rational, scientific reason for the sun rising,...
Well, yes and no. Observation and labeling are not necessarily the same as understanding. And even understanding is a far cry from controlling phenomena.
If we use your illustration of energy and examine the form of electricity, there are 3 labeled elements used to describe the whole, i.e. voltage, amperage and wattage. We know the relationship characteristics between each item, but why and how they each separately exist is ultimately a theological exercise.
We see, understand and manipulate these items to achieve desired results. Sometimes our desired results have unintended consequences. Basic monetary theory has similar characteristics of our understanding of electricity, voltage=money supply, amperage=velocity and wattage=gdp.
Tweaking one of these items creates predictable and useful changes in the other 2 when we have a closed system. What we're discussing here is the introduction of a foreign voltage into a system that may not be able to handle the strain. imo.
Yes, gold mines do not last forever and they are by and large priced with that in mind.
Most gold miners are not hedged these these days so their profits are in tact.
Regulated futures markets are just that a free market for futures. Free markets benefit from them.
Interesting article. Look to August for the beginning of a rally in the gold and silver mining stocks. By that time, the stable price increases in the metals will have started to have a significant impact on the bottom line.
However, currencies are not about to fail suddenly, they will just continue to be degraded as nations work through their debt loads. America has had period of inflation following every major war since 1812 except for the Gulf War that was paid for by Saudi Arabia. This time will not be different. We have always inflated ourselves out of debt. it is not a disaster, it is just the way this government has always handled it. So don't so surprised when it happens again. Just stay long gold, silver and good miners.
And long netflix too?
www.silvergoldsilver.blogspot.com
No, I don't think so. Netflix is just a momo stock that have it's day and be eclipsed by a more innovative competitor that's not on the horizon yet in addition to being a bit too pricey for me.
I think he 'gotcha' there...