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Has the Tide Turned for Precious Metal Stocks?
By Russ Winter of Winter Actionables
Many post-facto articles appear at the end of severe bear markets and bull markets. A recent Wall Street Journal article, for example, noted:
"One of the world's biggest gold bugs is getting crushed by the metal's steep fall.
"The flagship fund of prominent Canadian hedge-fund manager Eric Sprott SII.T -1.56% has dropped more than 50% this year in what will likely be the third consecutive year of double-digit percentage losses, according to documents sent to investors.
"Redemptions and weak performance have pushed down hedge-fund assets managed by Mr. Sprott to about $350 million from nearly $3 billion in 2008." (Article here.)
The latter probably is a 3Q number that has been driven even lower by endless taper-talk and Comex paper shorting rout in the 4Q. The historic liquidation has run its course and supply is drying up.
How much more selling is left in Sprott’s and similar funds, or for that matter in the GLD ETF? The latter has liquidated its gold, plus some that was added going back to Lehman Brothers. How much additional naked-paper shorting to producers and bullion bankers can slingers muster? Nominal would be my estimation [see "One for the Ages"].
Rick Rule of Sprott conducted an interview about this flow of funds situation and offers some color on what’s transpiring. I put his last comment first because it points to the timing of what’s potentially a real turn in sector money flows. I think he is hinting that the money flow worm has turned from a selling climax to a gearing for an up phase.
“[The] events that have transpired over the last month have made me much more bullish in terms of timing than I would have been six weeks ago,” Rule said. “First, has been with regard to our Sprott mutual funds. We are seeing net inflows, as opposed to redemptions, for the first time in a long time.
“We recently signed and funded a joint venture with the incredibly large Chinese state-owned mining company,” he said. “This will show that outbound investment by the Chinese government into the junior mining sector, which is what we’ve specifically been charged with, is alive and well.”
Note: The following is in regard to the Zijin deal that I wrote about several weeks ago [see "China's Precious Metal Mines Running Out Of Reserves"].
“We expect to be able to announce a similar joint venture with another name-brand Asian investor by the end of 2013. Once again, this is testimony to the fact that Asian strategic investors are back in the junior mining sector in earnest,” Rule said.
“Our Sprott institutional lending fund, where we aim to raise $350 million for our lending business, is very close to securing an extremely strong cornerstone lead-order from a name-brand North American institution.
“I did a couple of days of marketing around the city of London with our CEO. We were seeing some of the bigger accounts in the city of London. The bottom line is we received an awful lot of interest in what we were doing.”
One would think that value investors from outside the industry would be all over this vacuum. Adrian Day’s fund was able to buy 5% of Vista Gold for less than a million and half dollars.
Teranga’s very bullish $135 streaming royalty deal with Franco Nevada is also a bell ringer. It has all the hallmarks of a smart, private company builder transaction that is shareholder positive. Further, it refutes the notion that there is no activity in the space. Incidentally, FNV has $1.3 billion in capital for acquisitions.
Before the deal, this went completely undetected by the market. TGZ was trading in a dull, vacuum-like manner, much like the rest of the sector. The good news is that the stock actually responded with a 32% rally on the news. TGZ will soon become a large producer and has the full backing of the government of Senegal, which has a stake in the deal. In fact, I have it from good sources that Senegal helped pushed this deal through. Hats off to TGZ management for consolidating this high potential district without any shareholder dilution.
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so many word games! I'm pooped.
That you Turd?
yep, any day now!
Rob McEwen: “The Next Run Will Be Driven By Gold Moving Higher, As Well As New Discoveries”
Rob McEwen gives his view on the Gold market and what will be the driving force behind the next Bull Run. He is looking for the deals in this market environment and that new discoveries will be driving the successful companies backing them. Meanwhile Gold is under pressure today testing the recent lows. Equity markets are drifting lower and Interest Rates higher. Rob reminds us, that turnaround can be very fast as we saw this summer after Gold has bottomed out and miners were spiking up. Equity markets are very high now and Gold sector is very undervalued, people will start looking at the relative values at these levels.
http://sufiy.blogspot.co.uk/2013/12/rob-mcewen-next-run-will-be-driven-b...
start to finish reading that, I heard like it was Eric King in my head.
And now without further ado...
Good post Confundido. It's a hated asset class and every monkey in the world shorts every move, like last week. I think my mine positions (all majors) are fucked perhaps another 1-2 years.
We are near or at all-in costs. Hedging can only go so low. Many mines are suspending or going to suspend dividends. Shut-ins are next, and layoffs. This is where you buy bullion.
Stomach this one and ride it out and you will see 300-500% gains in 3-5 years, just mvho. No margins and not lifestyle-changing money on the line here. I personally will buy bullion with every opportunity.
Who really thinks this latest barrel of monkeys has broken gold's role in the world? What's flying high right now, let's see the menu ... LNKD, AMZN, FB, SAM, CMG ...
"Stomach this one and ride it out and you will see 300-500% gains in 3-5 years, just mvho"
pretty sad.
I could see 10 to 100x gains in AGQ calls PER contract for 2016, probably 10-50 for 2015jan calls, with the metals up, even if the miners tank.
Easily silver to 60/oz during 2014.
easily silver to 70-100 during 2015 (played by 2016jan expiration of AGQ).
agq = silver 2 x 8 / 191
so:
60/oz silver USD : 150 AGQ
70 : 205
80 : 268
100 : 418.84
just think about that. The cheapest AGQ 2016 call is strike 25 for 3.00 currently, and let's say with fees you're adding 3.8 to the strike for your break-even.
How much is 418.84 - 28.8 ? It's around 390 x$100 bills in profit. What's 390 / 3.6 or so? It's 108x gains.
Show me the miner that will do that.
Even looking at the 2015 jan calls, say strike 25 again, we're looking at 1.95 ask so let's say 2.50 added for the break-even of 27.50 and let's say we never see over 50 during 2014.
We're still now looking at 104.71 AGQ and 77 x $100 profit and what is 77/2.2 or so? That's 35x gains.
if you're chasing paper then don't chase the paper almost assured to lose.
As it is I'm in for 35 & 33 strikes on the 2015jan expiry, got in a little early but given where it's going I don't mind at all.
500% gains? 5x profit? 6.0x initial cost as total return including principle? That's a pretty low standard for something so risky as to not be physical atoms of gold or silver in your hand.
"Stomach this one and ride it out and you will see 300-500% gains in 3-5 years, just mvho."
My view is that those who gold mining shares will simply see them become worthless. Paper gold is on its way out because the system it was designed to support, the international dollar based system, is slated to be replaced. And those who once lent their support to this now down dying system no longer have an incentive to do so. In fact, at this stage, they have more incentive to see the present system sundered and replaced because the $IMFS is way past its sell by date.
There is absolutely zero need for gold mining when there is approximately sixty years of above ground stock in existence. And there is even less need for something (paper gold) that artificially expands the stock of an asset that is already abundant. Physical gold is the only asset than can reset the system, i.e. retire and/or neutralize debt, and also allow for a new system that will have a component, courtesy of physical gold, that will act as a brake on rampant credit creation. None of this can come to fruition until the paper gold markets are destroyed. That process is well underway. In the meantime, as long as paper gold exists, traders can keep gold tethered to other actual commodities.
Even the minging company carny barkers who may have some understanding of what I've described will never admit the cold hard reality that their business is the financial real equivalent of the dodo bird, because, as Upton Sinclair observed, "It is difficult to get a man to see something when his living depends on him not understanding it."
" There is absolutely zero need for gold mining when there is approximately sixty years of above ground stock in existence. "
What does this mean ?
Uparrow to you edwardo1 for a good exposition of the counter-argument. But there are markets and there are markets and the East is breaking with the declining West and going to form its own Souks like they are in Singapore; where there will be price discovery not suppression.
You appear to be saying there is enough gold already.
The shares are in much worse shape than the bullion price but I think they will come back. This is not the end of any era for real stores of value. People are going to grind their teeth in the USA when their gas goes to $10/gallon or a pre-Lyndon Johnson quarter. We may get to the point where merchants will accept silver as an alternate to fiat. As if anyone has any. Many Americans will rue the day they sold the grandfather's coins. collection.
I agree. I'm down a lot but I'm not even thinking about selling my PM miners. In fact I've been buying more. It's a no brainer investment (as a sub-sector) now.
This is war and all bets are off.
Three reasons why the tide has not turned:
-the Comex survived and is in fact gaining physical gold previously lost = naked short selling can continue.
-banks have not lost deposits. In fact, we may still see negative deposit rates = nobody sees gold as a refuge.
-the restructuring in the mining sector has only started and whoever contributes equity or loans to the deals will demand hedging (i.e. the sale of futures in gold) = naked short selling can continue.
There was a commercial - think it was during a football game - that offered gold for sale, stating that with the increase in the money supply (in so many words) that gold would protect their wealth. When we see these regularly, we've crossed over to launch time....
negative real interest rates, when inflation exceeds the nominal interest rate, is one of the most time-tested bullish indicators for gold prices. that "we may still see negative deposit rates" increases the negative real interest rate, all others equal, so is bullish for gold prices.
Hedging continue? There is absolutely no Comex miner net hedging right now, the producers are net long, first time ever.
http://img534.imageshack.us/img534/8937/vnbs.png
Something wicked this way comes...
nice catch.
-the Comex survived
Yeah.....by kiting checks.
Have you ever tired to get some gold from the Comex? By that...I mean you personally. I don't want to hear any crazy theories on how crap should work.
Buying opportunity?
certainly the collapse over the summer has attracted huge capital inflows. Morgan Stanley is now at thirty bucks a share so there's your winner. if these companies can truly produce product obviously you always have a buyer at any price in Eric Sprott. the USA already has over a thousand billionaires...with more on the way in my view...perhaps many more if this oil boom really "takes it to the next level." Elon Musk is the poster child for this mania...I can think of a lot worse actually. "pretty much everyone else" actually although Howard Hamm is right up there as well. the USA brand is still shot to hell here...in the 50's we had the UN in Korea and "the evil military industrial complex." In the 60's we had the Space Race. In the 90's we had a peaceful resolution to the Cold War and diplomacy. This time around? The NSA? Karzai? Korea? meh. The last decade was shot to hell and this one hasn't started out any better. QE and "moral hazard"? gee, thanks. the sad part is that there really is good news to talk about actually.
I Hear there are so many billionaires in Zimbabwe, they're wiping their asses with million dollar notes over there.
Lots of mining companies in Zimbabwe with employee staffs of one persons.....I hear they trade the gold for bread.
Good idea. We should go over there and offer them two pieces of bread.
He he he.
I'm always up for a little arbitrage.
If you offer them three slices of bread, I'm going home. I can't compete with that!
>>>the sad part is that there really is good news to talk about actually.
There is always good news. Ray Kurzweil, for instance, is probably going to live forever! Pity about Uncle Warren, though.
This is good news.....for management.
Gold equities were good for a pop about a decade ago.....but alas....you would have been better just buying physical back then.
Beware the dilution that management always seems to find.
A mine is a hole in the ground with a liar at the bottom - Mark TwainThey never had their typical crazy blow-off top that has historically always happened with gold bulls. Unfortunately, that's what biased me to the point of ignoring the obvious and trying to catch a falling knife the past 2 1/2 years (while knowing better) - the idea that 'they CAN'T be in terminal decline, they haven't had their blowoff top'. I may be proven right in the the end, they may still do the rocket to the moon, but at this point it won't make much difference.
The cheapest Au to mine is in people's homes. Ever heard of "Cash for Gold"?
My bet is that Au can go lower still, mines can and will shut down and/or consolidate until only a few of the biggest/richest players remain.
These can then easily be turned into a part of a global gold cartel or nationalized.
Alas, reality is more complicated and less 'ideal' than gold affectionados/shills want it to be (myself included). That's why Asset Allocation is still King over all pretenders to the contrary.
Good luck, we'll review a year from now.
You are correct sir. We will go straight to the state of massive supply chain failure, period.
The world has been here before, just never on a global scale.
A can of fucking beans will be priceless before gold goes "to the moon"
Hedge accordingly Al...
money has several properties, including:
- is accepted by merchants
- can be transmitted digitally and stored on a flash drive
- is backed by the full faith and credit of a stable entitity, or by proof of work
- can be encrypted
as more and more people are discovering, metals lack these important characteristics
hugs,
mister satoshi-yellen