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Did GLD And Other Gold ETFs Kill Gold Stocks?

Tyler Durden's picture


In a just released piece by Goldman's Eugene King which explains the firm's justification for why gold will peak at over $1900 in 2012, and which we will discuss in greater detail shortly, Goldman brings up a very interesting point, namely that the ongoing weakness in gold stocks, and the broad decoupling of gold miners from gold price can be attributed to one primary thing: the emergence of synthetic means of expressing a position on the gold market and "bypassing" direct gold cost pass thru exposure in the form of gold stocks. Supposedly this is a good thing, although we would caution that this is potentially a very insidious scheme to allow the world's cash-rish entities (read banks full of those ones and zeros that these days pass for "money") to procure real gold assets at very cheap prices and valuations, even as the broader retail investors proceeds to chase paper gold in the form of "synthetic CDOs" such as GLD (which as we first noted over a week ago may well disappear when the paper claims collapse and suddenly everyone has a claim on the underlying physical), only after the fact realizing they merely used gold as a paper pass thru equivalent. In other words, as the broader population continues to realize that gold is the real safe asset, yet invests in legacy forms of exposure, i.e., paper, the real hard assets: firms that actually extract gold from the ground and process it, remain out on the auction block to be snapped up quietly by all those who want exposure to the primary source of the metal, which they can then throttle at will in order to manipulate the supply side of the equation post facto.

From Goldman which notes one of the primary reasons for gold equity underperformance compared to the spot gold price:

Increased ability to access physical gold: The introduction of ETFs, growth in the transport, storage and insurance industries to support secure warehousing, and development of a liquid, reliable options market meant that investors who previously had to buy equities to gain access to the underlying commodity could now just buy gold directly. Up to 2003/04, gold equities traded at a premium multiple, reflecting the relatively higher demand from mining and gold investors who wanted to access the gold price, but had limited other means to do so. Therefore, even as the amount of capital invested in gold has increased, it is being fractured into multiple channels for investment.

And the chart that speaks a thousand essays:

To be sure, in our day and age of quarterly expectations, gold miners have not been very good at keeping the investor base happy:

But that is to be expected - input costs move far faster than the cost of the underlying product. And when dealing with a secular shift away from paper and to physical exposure, the transition will take a long time. Which begs the question - shouldn't investors be more patient when dealing with gold miners?

Because as the following chart shows, Gold miners have obviously decoupled:

And in the meantime input costs have been rising far faster, which further makes gold equity investors uncomfortable

Goldman summarizes all of this as follows:

In 2H2011, three factors have made this phenomenon all the more noticeable to investors:

  • the speed of the gold price move in 3Q2011 created a lag, as investors needed to see the price sustained at higher levels;
  • a strong belief in a higher gold price meant there was no need for equity exposure to get the upside; and
  • given the economic uncertainty, sector rotation out of equities took place throughout 2011 and gold equities were not immune.

…and the gold multiple premium is going, going, going – we think it’s gone

Looking at the reasons we identify for gold equities lagging the gold price – the rise of ETFs/physical investing options and declining returns – it is hard to imagine a time in the future when these two issues will reverse and investors flock back to gold equities. In our view, it is more likely that returns continue to decline as capital intensity increases, cost inflation comes through and tax/royalty structures enacted by governments around the world extract more from the mining industry. As the gold price has increased, consensus earnings have risen, yet the stocks have underperformed on a relative basis – the only explanation for this is that the stocks have de-rated. Looking only at the stable producers in our coverage, P/E multiples have fallen (Exhibit 3). Production underdelivery and higher capital intensity leading to lower returns are key factors behind this de-rating.

So while we appreciate the fundamental and technical reasons for why gold stocks are underperforming, the sinking feeling we have is that as synthetic exposure in the form of CDOs has surged in the past decade, allowing more and more retail investors to foolishly believe they are invested in "actual gold" (and not paper claims thereof), this has acted as a grand distraction preventing those who want real exposure in the form of controlling the underlying asset from expressing their interest in the right way. Because all it would take is for banks with a glut of credit money to bid up all the gold miners, and thus control the entire physical gold supply chain, at which point the "distraction" of precious metal ETFs can simply go away.

Our advice, as always, stay away from ETFs: they are nothing short of what synthetic CDOs were back during the credit bubble years. And take advantage of relative mispricing between fake (ETF) and real (miner) asset representation.


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Mon, 12/19/2011 - 10:03 | 1993762 achmachat
achmachat's picture

Sometimes the choir likes being preached to.

Mon, 12/19/2011 - 10:17 | 1993802 Snidley Whipsnae
Snidley Whipsnae's picture

We now have a banana economy and a banana judicial system backing it. If you are holding FRNs they will be decimated when printing resumes. If you are holding paper PMs or even physical PMs with a warehouse receipt... good luck.

"Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bullion From MF Global"

"The bottom line is that apparently some warehouses and bullion dealers are not a safe place to store your gold and silver, even if you hold a specific warehouse receipt. In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation."


Mon, 12/19/2011 - 10:23 | 1993824 mrgneiss
mrgneiss's picture

You have to hand it to the ponzi banker who dreamed up the gold etf's, especially the ones with their gold rehypothecated to infinity - kill the demand for physical gold and gold miners at the same time.  A central banks/fiat oligarchists wet dream.  I guess the major flaw in their plan was not forseeing the developing world wanting the amount of gold in their reserves to go from 0.5% or so to a lot higher, and actually demanding physical delivery.

Mon, 12/19/2011 - 10:34 | 1993854 Snidley Whipsnae
Snidley Whipsnae's picture

"I guess the major flaw in their plan was not forseeing the developing world wanting the amount of gold in their reserves to go from 0.5% or so to a lot higher, and actually demanding physical delivery."


Yes... and as the developing world central banks begin buying more gold for reserves what are we witnessing? Anyone believe that the Anglo Americans will sit by while the fiat schemes are destroyed? How much gold can foreign central banks accumulate when their economy and currency are destroyed?

+1 mrgneiss

Mon, 12/19/2011 - 11:11 | 1993977 Oh regional Indian
Oh regional Indian's picture

Hmmmm, yesterday RonP, today Gold. But I guess I like a little pushback.

Gold is falsely valued at this time and is only relatively priced. There is no absolute value/price for Gold anymore. Has not been since the Petrodollar economy flourished. 

3 swimming pools is a lie. Huge lie. 

And if gold is manipulated, you know how miners are manupulated. Heck, Barrick is a pappy Bush play, through and through.

Point being, there is really no pattern to discern in such a manipulated market (except opex times and the like). And in the true re-eval phase, the currency whcih we eval it in will be meaningless.

$55,000 an ounce. Right!



Mon, 12/19/2011 - 11:37 | 1994083 Thomas
Thomas's picture

Central Fund of Canada.

Mon, 12/19/2011 - 13:03 | 1994468 midtowng
midtowng's picture

That's what I use. They have a solid track record and hold both gold AND silver.

I've given up on most of my miners. They tend to track the S&P too closely.

Mon, 12/19/2011 - 12:13 | 1994283 Smiddywesson
Smiddywesson's picture

If the Bernak follows through on his 11/21/2002 helicopter speech game plan, and it looks like he will, we are going to return to some sort of a gold referrenced standard and ramp the price of gold to devalue our currency.  How much we devalue the currency, and how high gold prices go, depends upon the balance sheet and how many defaults are politically acceptable.  Given that it's easier to steal from people through debasement than default on government promises, I'd say your $55,000 price target is a distinct possibility.

Mon, 12/19/2011 - 10:34 | 1993857 uno
uno's picture

reason we are on the war tour through the middle east and soon Africa is to get the oil/gold other minerals, have to assume Venezula soon since they are getting their physical back

Mon, 12/19/2011 - 10:36 | 1993865 Monedas
Monedas's picture

A lot of artificial supply satisfied appetites for Gold and surely hurt prices for the real stuff and the miners ! The miners have problems of their own....sitting ducks for taxation, environmental regulation, competition, expropriation and share holder dilution ! I'll stick to the real deal !  Monedas 2011  Comedy Jihad Not Buying Sizzle Nor Glitter

Mon, 12/19/2011 - 12:16 | 1994294 Smiddywesson
Smiddywesson's picture

Perhaps, but the big Boyz own the miners too.  That's an argument for holding miners.  However, the Boyz can afford to avoid taxation, we can't.

Still, the risk is there, so a wise gold bug must keep some physical around just in case.

Mon, 12/19/2011 - 12:58 | 1994439 russki standart
russki standart's picture

One of the big problems facing junior miners are naked short sellers, who are able to pound the stocks down knowing full well that they must re-finance in the marketplace. Until the issue of FTD's is settled via criminal prosecution, this practice will continue to flourish on the TSX.

Mon, 12/19/2011 - 12:09 | 1994263 Nacho.Libre
Nacho.Libre's picture

Soooo... a bit off topic, but along the topic of mining.  Can someone give me an idea or point me to a processing plant, preferably in Texas, that can process raw material to extract the metals, specifically gold, copper, and silver, maybe a little palladium?  Or some information on the extraction process that's bit more detailed than wiki?





Mon, 12/19/2011 - 13:48 | 1994645 mick_richfield
mick_richfield's picture

A Canadian place called Aurcana bought an old silver mine in West Texas that had been closed since 1942.

I do not believe that they have started production yet, though.  ( But they have started building... )

I don't think there are any other operating silver mines in Texas.

Mon, 12/19/2011 - 17:28 | 1995599 Nacho.Libre
Nacho.Libre's picture

Thanks.  Actually, the deal is that I have an uncle with a claim, but it's in Mexico.  He can mine the rock, but doesn't have the equipment for final extraction.  With the cartel stuff in Mexico, I suggested he transport the raw material to Texas for extraction.  The samples they have sent to labs show it very rich in Gold, but because of the high copper content, it apparently doesn't leach well, so there needs to be some other method for final extraction and I wanted to make contact with a refiner in Texas.

Mon, 12/19/2011 - 11:08 | 1993961 GubbermintWorker
GubbermintWorker's picture

All your gold are belong to us!

Mon, 12/19/2011 - 10:45 | 1993891 rosex229
rosex229's picture

Wahoo! the site has referenced Zerohedge for the 2nd time in 2 weeks on their live debt crisis blog (its always the front and center "article" in their finance section)!

Check it out for yourself (to speed up the process just hit Ctrl + F and type in "zero hedge" (two words).

I'd come here for my daily news fix regardless, but I'm having fun pondering zerohedges break into contemporary news sites.

Mon, 12/19/2011 - 12:33 | 1994332 jekyll island
jekyll island's picture

Tyler, What is GS trading desk position in regards to gold mining equities?  Are they buying?

I am now conflicted, I usually do the opposite of what GS recommends.  I see the miners as undervalued, i.e. International Tower Hill mining has 20mOz gold deposit and almost $100 million cash and they are at $3.67/share?  Give me a break.  ATAC is below $3/share, they were at $10 earlier this year.  Now GS says to buy 'em.  I am suspicious they will now go lower even after tax sale loss season ends. 

Mon, 12/19/2011 - 10:08 | 1993771 SheepDog-One
SheepDog-One's picture

Who cares about gold ETF's or gold stocks? If you want gold, then buy some gold.

Mon, 12/19/2011 - 10:22 | 1993821 Wolf-Avatar
Wolf-Avatar's picture

Gotta get y'r shiny on.          :-)

Mon, 12/19/2011 - 14:37 | 1994769 ArgentoFisico
ArgentoFisico's picture


Italian gold&silverbugs on  >>>

Mon, 12/19/2011 - 17:01 | 1995497 OliverTwist
OliverTwist's picture

Ma senti un po ArgentoFisico: è vero che a Roma è difficile trovare dei posti affidabili dove puoi comprare l'oro/argento fisico?


Mon, 12/19/2011 - 10:40 | 1993845 Chester_McGoldsteez
Chester_McGoldsteez's picture

If you pick a well managed, non(minimal)-elitist controlled company, owning equity in a gold producing company is a good way to play the gold move , especially for person who is in a position where they dont have much cash to invest with. with these stock prices where they are, i think its pretty attractive, and definitely not a bad way to get in on the action, so long as you have the stomach to sit through the manipulation until the real crisis happens. Even though most sheeple cant sit through the short term volatility and usually get shaken out. 

Mon, 12/19/2011 - 10:44 | 1993890 Shineola
Shineola's picture

Then you get to pay your taxes on any imagined gains. Baaaa

Mon, 12/19/2011 - 10:56 | 1993923 Chester_McGoldsteez
Chester_McGoldsteez's picture

Easssssy troll. Physical is obviously king, but the huge gains i'v made still are unseen since im not stupid enough to sell my holdings, since the real value still has a long way to rise. So even though my value is up, my cash is still the same, day to day, im in no different position than I was before i bought physical. Whereas now i'v collected dividends on gold producing stocks. Im not advocating stocks to everyone, you have to know what you're doing. Since you were quick to brush it off, im sure you don't which is fine, but its Just another way to get on the game, while taking a little extra cash to play with. But by all means, Baaaa all you want.

Mon, 12/19/2011 - 11:19 | 1994001 Shineola
Shineola's picture

I'm sorry sir. I did not mean to offend you. Sheeple buy paper not gold.

Mon, 12/19/2011 - 12:49 | 1994405 jekyll island
jekyll island's picture


There are two types of posters who respond to articles about mining companies on ZH.  The apocalypse types who advocate possession of PMs only and those who probably have a good position in PMs and are now looking to leverage the miners for better returns.  Looking at the dozens of companies that had 1,000% returns or more during the last two minibull markets, I want some exposure to those kind of gains, which are usually in the junior miners.  Nothing feels better than hitting a home run: tripling the initial investment, getting shares of a spin out company and using profits to buy more gold.  Some posters on this board don't understand that process, but to each his own.  I personally think the charts indicate a distortion in the mining sector which will correct sharply to the upside as gold continues to assert itself as money.  I agree with you about being patient, this is one area where you have to be on board before the train leaves the station, even if that means short term loss as you build a position.  GLTA. 

Mon, 12/19/2011 - 10:49 | 1993901 XitSam
XitSam's picture

"If you pick ..."

Well, that's the problem isn't it. I don't know these people and company histories, don't have the time to find out and track them and make sure the press releases are the truth. Right now I'm all about wealth preservation.

Mon, 12/19/2011 - 11:01 | 1993941 Chester_McGoldsteez
Chester_McGoldsteez's picture

Alright, well i made the comment from a perspective of someone like myself, who takes the time to look into their investments, how companies are run etc. Now in no way am i saying that its possible to get a 100% clear picture of a companies managment, just like anything else in life, but I will say its not impossible to separate the complete shit companies from ones who are well run, and make money. If you do your homework that is. Again, physical is king, I was simply saying for those who are looking to get the absolute most out of the gold run, and are willing to put in the work and do their homework, its just another option. 

Mon, 12/19/2011 - 11:41 | 1994098 Shineola
Shineola's picture

OK, then! We've got that all cleared up. Drop by the bunker anytime. :)

Mon, 12/19/2011 - 11:41 | 1994103 Bring the Gold
Bring the Gold's picture

Hey Chester what do you think of Chesapeake and Pretium? I'm liking both of these plays my only concern is energy inputs going nuts at some point. It seems the slide into recession when oil hits a certain price tends to cap it as use drops when oil hits a certain price, whereas gold has moved up steadily since 2008. Most of the majors are pwned by blue bloods and I shy away from that. I like millions of ounces in the ground and more to be found. I also have some silver plays, but that's for a different post. One other gold play some may like is Sandstorm Resources as its a royalty play so they get even more of the upside exposure with fixed prices for the gold they get.

Mon, 12/19/2011 - 14:51 | 1994913 jekyll island
jekyll island's picture

I have been following Pretium for a while, I like it a lot, I like it a lot better under $9/share. 

Chesapeake is too leveraged for me, look at Africa Oil Corp. 

I have Sandstorm metals and energy, am waiting for Sandstorm Gold to fall below $1/share, looks really good at that price.

Mon, 12/19/2011 - 15:03 | 1994959 TheGardener
TheGardener's picture

You either buy physical , or you become a shareholder.

In the latter case, according to Davila, it doesn't matter
whether you are ruled by a few chairman or a politburo.

Mon, 12/19/2011 - 11:06 | 1993951 vipobviously
vipobviously's picture


...and if you want to put your head on the choping block and hope the guillotine does'nt fall, buy etf's/gld

Mon, 12/19/2011 - 11:37 | 1994082 blindfaith
blindfaith's picture

just got a call from znbc, your apperance has been cancelled.


Mon, 12/19/2011 - 13:45 | 1994638 vipobviously
vipobviously's picture

but...but...but..  my head is still attached to my torso, i thought that was the only requirement, along with being able to read the "party line" from the teleprompter

....have my people call znbc and reschedule please


Mon, 12/19/2011 - 12:59 | 1994450 jekyll island
jekyll island's picture

I do. The math is quite compelling.  The market cap of the entire gold mining industry is less than Wal-Mart's.  When confidence is lost in fiat currency, it will be nearly impossible to buy physical PM's, they just won't be available.  What's left?  Mining stocks.  What will happen when a couple of trillion dollars comes into a market that is valued less than $200 billion.  That is the definition of a parabolic move. 

Mon, 12/19/2011 - 10:09 | 1993773 DormRoom
DormRoom's picture

highly leveraged gold collateral trade collapses, then gold prices will collapse.

Mon, 12/19/2011 - 10:10 | 1993779 SilverIsKing
SilverIsKing's picture


Mon, 12/19/2011 - 10:25 | 1993833 Spitzer
Spitzer's picture

when the comex defaults, the paper price will crash to the low 100's. Meanwhile, the holders of physical gold will be holding the most valuable objects on earth.

Mon, 12/19/2011 - 11:19 | 1994000 Bendromeda Strain
Bendromeda Strain's picture

Decoupling, biznatches!

Mon, 12/19/2011 - 11:43 | 1994114 Bring the Gold
Bring the Gold's picture

And for those who can't get physical (the majority) a tried and true method of exposure - buying the miners - will see a moonshot that is truly breathtaking.

Mon, 12/19/2011 - 17:06 | 1995505 OliverTwist
OliverTwist's picture

comment deleted

Mon, 12/19/2011 - 10:10 | 1993774 cossack55
cossack55's picture


Counterparty risk, anyone?

Mon, 12/19/2011 - 11:45 | 1994136 Bring the Gold
Bring the Gold's picture

Well if you are a citizen and hold your gold in an NWO controlled country, or one with a dictator, then confiscation is also a risk. There is no such thing as a lack of counterparty risk on this planet. People who think otherwise are delusional. Can you limit it by living off the grid and burying your loot? Yes, you can limit, but never truly remove counterparty risk in the form of the strongman whether governmental or non-partisan thug. The greatest illusion of all is perfect safety.

Mon, 12/19/2011 - 15:14 | 1994993 TheGardener
TheGardener's picture

But goldbugs are supposed to be true reactionaries defending
a lost post. You can't possibly win, but you chose to fight.

Mon, 12/19/2011 - 10:10 | 1993775 SilverIsKing
SilverIsKing's picture

There's no time like the present to buy up physical and miners at artificially distressed prices. Woulda, shoulda, coulda will be on the lips of those who sat idly by when then could have been taking advantage of the opportunity of a lifetime.

Mon, 12/19/2011 - 10:12 | 1993783 cossack55
cossack55's picture

IMHO, gold is a store/reflection of sovereign wealth.  When the nation in which you reside loses its sovereingty, guess who else does.

Mon, 12/19/2011 - 11:10 | 1993966 vipobviously
vipobviously's picture

Not in America cossack, chisholm v. georgia

Our soverienty is not granted by the state, but in all fairness not recognized by  such w/out a legal battle

Mon, 12/19/2011 - 11:20 | 1994005 cossack55
cossack55's picture

Yes, laws are never changed nor ignored in the USSA.

Mon, 12/19/2011 - 11:25 | 1994017 Bendromeda Strain
Bendromeda Strain's picture

Here's a thought, ace - if you don't want any, don't buy any. If you think your "input" is value added commentary, you are as delusional as you are arrogant.

Mon, 12/19/2011 - 11:22 | 1994013 Bendromeda Strain
Bendromeda Strain's picture

We heard you the first time, cossack. Maybe you haven't seen a globe/atlas in a while, but there are many nations with mine assets, and they don't all bow to your NWO yet. 

Mon, 12/19/2011 - 15:23 | 1995026 TheGardener
TheGardener's picture

In a democracy the sovereign is the people, or so they tell you. How come some barely elected , still notional national leaders over there in Europe declare it's time to give up sovereignty ? Who they are about to sell out ?

Mon, 12/19/2011 - 10:13 | 1993778 Duffminster
Duffminster's picture

Interesting Analysis.  Some over at GATA have long believed that the gold and silver stocks were used in the long term battle to supress gold prices, but the more I think about the revelations about rehypothecation, the more this makes sense to me.

When one of the number one article running on the mainstream financial web sites is about gold for much of the weekend is based on a Reuters survey of 20 economists, hedge fund managers and economists essentially stating: "Gold to Slip to Below $1,500 in Next Three Months", I believe that there is likely a near term chance that there are factors that make the Fed, primary derivatives dealers, perhaps even the CME and COMEX very nervous that nations, individuals and others want their physical metals in their own hands and soon and that massive QE is on its way via stealth or overt easing, swaps and other contributers to the money supply and they want to damp down the perception that thay "may be inflationary," and using MOPE is one of their primary tools to do this, along with near zero to negative lease rates, margin hikes and leasing operations by the central banks. There are several articles I'm looking at over the weekend to support my views. I'll post links to them and brief excerpts: Alasdair Macleod: Money supply explosion will lead to accelerating inflation - GATA It's Not All In The Dollar - Click to see charts and Additional comments - Eric DeGroot "...I agree. If the recent sell-off in gold was nothing more than a transition from risk-on to risk-off, why is money flowing aggressively not only into gold but also silver and copper (see chart below) as the global economy slows on the margin? It’s not all in the dollar. The market(s) are quietly telling us that 2012 will be the year of QE, either official or unofficial. If they burn down the barn to save the farm, gold is simply not big enough to handle all of the liquidity. ..." Fed May Inject Over $1 Trillion To Bail Out Europe -Zero Hedge"..."Fed Chairman Ben S. Bernanke yesterday told a closed-door gathering of Republican senators that the Fed won’t provide more aid to European banks beyond the swap lines and the discount window -- another Fed program that provides emergency funds to U.S. banks, including U.S. branches of foreign banks." Well, between a trillion plus in FX swap lines, and a surge in discount window usage which only Zero Hedge has noted so far, there really is nothing else that the Fed can possibly do, as these actions along amount to a QE equivalent liquidity injection, only denominated in US Dollars. Aside of course to shower Europe with dollars from the ChairsatanCopter. Then again, before this is all over, we are certain that paradollardop will be part of the vernacular...." Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bullion From MF Global -Zero Hedge"...Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations. This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process...." Legalized thievery. In the end, you better have your gold in your hands. While the MOPE masters at the Central Banks and their partners in crime at the bullion banks will try to make their MOPE stick, all I can hear the sound of the printing press and more and a growing realization that a bird in the hand is better than a piece of paper suggesting some you might be able to have a Turkey Dinner. Other than a dysfunctional Congress in which Republicans are claiming they are not defending the interests of billionaires and energy interests by making the social security tax cut dependent on an sand oil (grimy, dirty, sludge pipeline) and making sure there is no "millionaires tax" to help subsidize and "Democrats" that are willing to go along with that, there is little to tell me that anything but financial meltdown and QE (overt or covert) is driving the market.

Mon, 12/19/2011 - 10:19 | 1993812 gmrpeabody
gmrpeabody's picture

You may be the fastest typer (just under 10 min) I have ever seen.

Mon, 12/19/2011 - 10:36 | 1993866 FEDbuster
FEDbuster's picture

"Invest in things you can stand in front of and defend with an AR 15."  Ann Barnhardt

If we have to worry about theft of wealth from thieves like Jon Corzine, then one must go 100%, hold in your hands physical.  The integrity of financial markets is gone, trust no one.

Mon, 12/19/2011 - 13:04 | 1994471 Pegasus Muse
Pegasus Muse's picture

Great stuff, Duff.  A reader posted this over the weekend.  Gordon puts all the contrived selloff in PMs in perspective.  Gold is sitting at the bottom of its 10-year upward channel.  The bull market remains in tact.  It's a great time to buy.   Charts and commentary:

Also, there is a couple new interviews up on KWN.  Be sure to listen to James Sinclair and Egon von Greyerz.  Paraphrasing old Boss in Cool Hand Luke, these guys will get your mind right.  

Mon, 12/19/2011 - 10:12 | 1993784 holdbuysell
holdbuysell's picture

GDX? Bad or good?

Mon, 12/19/2011 - 10:21 | 1993818 Pladizow
Pladizow's picture


Mon, 12/19/2011 - 10:30 | 1993842 dereksatkinson
dereksatkinson's picture

You are paying a premium for someone else to pick your gold miners.  If yo are going to buy and hold over a long period, you are better off buying a basket of miners yourself.  If you don't want to do a bunch of work, GDX is fine.

Mon, 12/19/2011 - 11:25 | 1994025 Flakmeister
Flakmeister's picture

The only advantages of GDX is instant diversification and more importantly to me at least, a very liquid options market.... 

Mon, 12/19/2011 - 10:15 | 1993791 monopoly
monopoly's picture

Yup, already got all of the above information. Sorry, I will stay with miners and avoid ETFs in gold like the plague. Kyle Bass had it right. Less than 3% gold backing up GLD. What if more want to take delivery. "Oh, price will enter the equation then", never happen. And Mr. Bass quietly says "give me my gold". About 1 billion if I am correct.

Physical gold, quality miners and....patience. Yes, I have some confetti too for when the SHTF. And it will.

Mon, 12/19/2011 - 12:41 | 1993878 FEDbuster
FEDbuster's picture

Bass took the billion in gold for the University of Texas endowment fund (although I would bet Kyle has some gold stashed away, too).  Hugo Chavez said give me my gold, he "got" cancer.  Gaddafi said pay me in gold for our oil, look what happened to him.

They really don't want you to hold the gold.  Golden rule, those holding the gold make the rules.

Mon, 12/19/2011 - 15:51 | 1995144 TheGardener
TheGardener's picture

So all you can hold on to is power. Without power, no possessions. Gold is the currency of kings, derived from
godly power. In the hands of lesser beings, beware of the
melting point.

Mon, 12/19/2011 - 10:14 | 1993792 machineh
machineh's picture

Interesting analysis; thanks!

I wish King had touched on two other fundamental issues: expected return and volatility.

Theoretically, gold miners, as profit-making enterprises, should offer a positive real return ... whereas bullion itself, having no yield, does not. 

On the other hand, bullion's volatility is lower than gold miners. So in risk-adjusted terms (Sharpe ratio), bullion has beaten gold stocks hands down.

A deep question is whether this is a temporary, or a more enduring phenomenon.

Mon, 12/19/2011 - 10:19 | 1993799 Mercury
Mercury's picture

Can't large blocks (500k+ shares) of GLD be converted into physical under certain conditions?  And shouldn't this (until TSHTF) prevent the gold spot price from getting to far away from the GLD price?

Mon, 12/19/2011 - 10:17 | 1993805 Hansel
Hansel's picture

In 2003, Barrick Gold claimed sovereign immunity when sued for market manipulation, because Barrick was 'leasing' gold from central banks.  Stocks are paper, the same as etfs.

Mon, 12/19/2011 - 10:24 | 1993827 gmrpeabody
gmrpeabody's picture

I remember Barrick wasn't invited to many Christmas parties back then.

Mon, 12/19/2011 - 10:18 | 1993807 monopoly
monopoly's picture

I am also trending toward miners that offer dividends. They are not much at this point but adds a touch of insurance. NEM being one where they will increase dividend with every 100 increase in price of gold. Just trying to hit a few singles now and then.

Wil leave the home runs to those who buy NFLX, AMZN, ZNGA and RIMM>

Mon, 12/19/2011 - 10:45 | 1993888 FMR Bankster
FMR Bankster's picture

Gold in hand makes the most sense for smaller investments. (and safety) However, gold stocks make some sense for those with larger $ to invest. However, don't believe any of the analysis that says gold stocks are cheap based on prior ratios. Gold stocks are for trader types and now that GLD and other products are around they will gravitate there. NO reason for the premium prices that gold stocks used to claim as a scarce way to get gold exposure to continue. Plus, most of the cheap, easy gold is now gone and what's left is in countries with political risk. So lots and lots of ways to be disappointed in gold stocks, less in physical gold.

Mon, 12/19/2011 - 10:18 | 1993808 SheepDog-One
SheepDog-One's picture

We're now in financial tyranny, throw in Indefinite Detention Bill just signed, and good luck getting any fairness or justice when peoples trading accounts just vanish. Tough times ahead indeed.

Mon, 12/19/2011 - 10:53 | 1993913 sabra1
sabra1's picture

i'm sure the fema family friendly camps, have storage facilities, for those who would like to take ther PM's with them!

Mon, 12/19/2011 - 12:18 | 1994300 FEDbuster
FEDbuster's picture

They will salvage the gold from your teeth, expect nothing less.

Mon, 12/19/2011 - 10:19 | 1993813 junkyardjack
junkyardjack's picture

Duh, why would anyone that wants exposure to Gold buy gold miners where you're also exposed to potentially incompetant management?  Unless a company shows some ability to consistently outperform the underlying commodity like some oil companies are able to do you are better off buying an etf of the commodity than taking the risk that the management will pillage the company for their own gain.

Mon, 12/19/2011 - 10:24 | 1993831 SilverIsKing
SilverIsKing's picture

How about buying the physical good itself rather than an ETF? Whaddya think of them apples you shill.

Mon, 12/19/2011 - 10:36 | 1993862 Antifederalist
Antifederalist's picture

Answer : because the stocks are going to multiply in value much more quickly than the metal, think stream of water versus a bucket.

Mon, 12/19/2011 - 11:08 | 1993962 Monedas
Monedas's picture

And all that hopium provides cover for the fraudsters !   Stockholders are last in line, sexually harrassed employees get paid before stockholders !

Mon, 12/19/2011 - 10:21 | 1993815 PulauHantu29
PulauHantu29's picture

The Central Banks are buying physical bars I read; not buying paper symbols. I don't know much about Goldbugs but seesm to me better to own the bars if you are into that stuff.

but remember; "you can't eat gold" sayeth Buffet.


Mon, 12/19/2011 - 10:24 | 1993828 Antifederalist
Antifederalist's picture

Right Warren, but 6 billion people accept gold as money and will trade food for gold. Dollars and paper money? Not so much.

Mon, 12/19/2011 - 12:06 | 1993927 Badabing
Badabing's picture

Most currencies are valued by edibility.

Mon, 12/19/2011 - 10:31 | 1993816 Antifederalist
Antifederalist's picture

Fuck you Goldman.

We fade your recos.

The stocks are the bargain of the century.

Let's see, a bar, or a stream of bars selling at 3x cash flow. Pick one.

Also, Goldman is factually wrong, gold price increases have greatly exceeded input cost increases. The operating leverage in the business is stunning.

This is piss poor analysis by the squid. Stupid or designed to mislead.

Mon, 12/19/2011 - 10:54 | 1993918 gmrpeabody
gmrpeabody's picture

I'll go out on a limb and say..., you don't care for Goldman much.

Mon, 12/19/2011 - 11:00 | 1993937 fuu
fuu's picture

GS can DIAF.

Mon, 12/19/2011 - 10:21 | 1993817 dereksatkinson
dereksatkinson's picture

The miners are so screwed up.  JAG has a $9.30 bid in it from Shangdong ($1 Billion) and is trading 50% below it's buyout price around $6.  Sentiment is COMPELLING in the sector.  Most recent sentiment readings read a 0% bullish.  And that is coming from newsletter writers!

Mon, 12/19/2011 - 10:30 | 1993843 Antifederalist
Antifederalist's picture

JAG management sucks. Always has. Try Oceanagold, do the maths, pretty compelling. 2.8x EV to cash flow run rate and cash flow growing.

Mon, 12/19/2011 - 10:54 | 1993917 dereksatkinson
dereksatkinson's picture

The CEO is gone and they are selling the company.  Sentiment is clouding everyone's judgement.

Mon, 12/19/2011 - 11:15 | 1993988 Monedas
Monedas's picture

In an ETF they fuck you once......with the miners there are a thousand ways to fuck and disappoint shareholders.....the dupes at the end of the line with their hats off begging for their rightful share....then you have to convert your dividend to Gold ! Nothing incites fraud like real Gold !

Mon, 12/19/2011 - 10:25 | 1993832 kralizec
kralizec's picture

I'd like to know how supply and demand fit into the equation and if a return of traditional gold stock and the real price of gold performance is even possible at this point.

Mon, 12/19/2011 - 10:25 | 1993834 Sudden Debt
Sudden Debt's picture



Mon, 12/19/2011 - 10:35 | 1993858 monopoly
monopoly's picture

Huh? you missing a couple of zeros Sudden.

Mon, 12/19/2011 - 10:58 | 1993933 gmrpeabody
gmrpeabody's picture

No..., it's just, as long as he's wishing, why not wish BIG!

Mon, 12/19/2011 - 12:03 | 1994237 Stuck on Zero
Stuck on Zero's picture

He's thinking of the 1880s price.

Mon, 12/19/2011 - 12:50 | 1994350 FEDbuster
FEDbuster's picture

Gold was about $19/oz from 1833-1918 with only about a nickle difference over all those years (not a good trading commodity)

From 1919-1933  it stayed in a range of $17. to $26.  After 1934 to 1971 it traded on avg. from $34 to $41.  In 150 years it managed to double in price, stable prices due to gold standard of the dollar (even though citizens couldn't own gold for investment from 1933-1971).

When Nixon closed the gold window prices started to rise dramatically going from $40. in 1971 to $615 in 1980 (gold's best decade so far)

Avg annual price in the 1980's ranged from $317 to $460.  In the 1990's $278 to $387 (with the low coming in 1999)

The 2000's saw a low in 2001 of $271, and ended the decade at $1,224 in 2010

These are all annual average price of the PM London gold fix.

Mon, 12/19/2011 - 10:28 | 1993837 slewie the pi-rat
slewie the pi-rat's picture

funny they didn't mention one of Robo's all-time favorite Decoupling Tales:  buy gold and short the mining etfs

if you don't believe tyler that these are bad news, please do your own research

if your re-hypothecating broker presents them like they're the royal road to traders' paradise, not to mention casino-quality action, maybe it's time to wake up and smell the coffee

as always, read the prospectus for the product

that usually takes care of the problem...

if you're confused, then compare the literature to the prospectus on genuine US Mint-produced bullion coinage

if you're still confused, take more drugs and say hi to everybody's lil fren~~jose cuervo!

Mon, 12/19/2011 - 14:22 | 1994784 slewie the pi-rat
slewie the pi-rat's picture

rather than "edit" i'll just add this link, here:

SLV Short Position Update |

this is from ted butler, today, abt this very topic, with a seems-2-me emphasis on the shortability of the ETFs~~almost like they were designed to be shorted which, btw, they were...

Mon, 12/19/2011 - 10:31 | 1993844 Rumpelstiltskin
Rumpelstiltskin's picture

I think you're missing the point.

Mon, 12/19/2011 - 10:46 | 1993895 slewie the pi-rat
slewie the pi-rat's picture

because it's synthetic?

or b/c you are a T-R-0-L-L???

Mon, 12/19/2011 - 10:32 | 1993846 lairdwd
lairdwd's picture

I gave up on the miners - until they have a meaningful dividend I expect ratios to continue to weaken.

Mon, 12/19/2011 - 10:34 | 1993855 Bullwinkle Moose
Bullwinkle Moose's picture

Buy it. Put it in a safe. Forget it.

Mon, 12/19/2011 - 10:35 | 1993859 tmosley
tmosley's picture

Miners are the most tempting form of paper.  But alas, they remain paper.  I'd rather go to Vegas.  At least there I get free drinks and a nice comped room.

Mon, 12/19/2011 - 10:50 | 1993902 Richard Weed
Richard Weed's picture


You are so correct tmosley...!

A stock cert in miners is just another form of paper... miners are at the whim of local govt's etc.

When the shite hits the fan, only real gold coins/bars (in small denominations) is credible.

[fyi... under the Japanese invasion, flights out of Nanjing to Beijing were purchaseable only in gold coins... miner's stock certs would have been TP]

However, transaction costs of actual physical gold can run up to 10-15% going in and going out (coin premiums, taxes, delivery, etc)

Choose your poison... Vegas sounds like a good choice for me... esp if you throw in a few girls...!

BTW, the only thing that bothers me is that by rule, I do the opposite of what Goldman recommends for its clients... aka, I do what their prop desk does.




Mon, 12/19/2011 - 12:07 | 1994256 Bendromeda Strain
Bendromeda Strain's picture

[fyi... under the Japanese invasion, flights out of Nanjing to Beijing were purchaseable only in gold coins... miner's stock certs would have been TP]

In a real world scenario like this, the certs are only TP (to you) if you don't have the coin to take them on the plane with you. If you are left behind (presumed killed) in this scenario, someone else collects the cert and its value.

Mon, 12/19/2011 - 11:16 | 1993993 Fuh Querada
Fuh Querada's picture

All very true, but gold mining shares

- are easier to store than physical

- are a diversification under scenarios of confiscation of physical gold (read Chapter 11 of Jim Rickards' new book Currency wars)

- they pay dividends

In my view there is a rationale for holding a small percentage of one's assets in the shares in addition to physical metal.

Mon, 12/19/2011 - 13:04 | 1994465 peterm17
peterm17's picture

I agree, very good points.  If you're looking for more info on gold stocks, I would highly recommend GoldAlert Pro, which provides rankings and analysis on over 90 gold and silver stocks.  The site ranks companies on a variety of factors and also provides commentary from wall street analysts, as well as macro information on the gold market and broader economy.  Check it out:

Mon, 12/19/2011 - 13:19 | 1994537 Fuh Querada
Fuh Querada's picture

Many thanks for the link. I will check it out. Currently I susbscribe to Casey Research Big Gold and International Speculator, which seem to be reasonable.

Mon, 12/19/2011 - 11:23 | 1994014 Monedas
Monedas's picture

With miners management can fuck you legally or illegally a thousand ways....then everyone else gets a piece of you ! That miners don't outperform Gold is the red flag ! They should go crazy when Gold goes up !

Mon, 12/19/2011 - 11:58 | 1994215 forrestdweller
forrestdweller's picture

what's with the exclamation signs?. it takes time to type them and it doesn't make more people read your text.


Mon, 12/19/2011 - 12:12 | 1994281 Bendromeda Strain
Bendromeda Strain's picture

Monedas is trying to make an important point! Very important!

What he obviously did! not! do! is bother to read the article about the intended effects of GLD.

Mon, 12/19/2011 - 10:38 | 1993869 Odin
Odin's picture

I gave up on miners too...the manipulating motha fuckers won... i'd rather short their fraud market and buy phys once it bottoms out...

Mon, 12/19/2011 - 10:40 | 1993873 DOT
DOT's picture


Can't be gold and not gold, at the same time and in the same respect.

Only gold=gold.  Get real.

Mon, 12/19/2011 - 12:00 | 1994222 forrestdweller
forrestdweller's picture

it's the old philosophers trick.

first you have a piece of gold. you think of it and then you have two pieces; the real piece of gold and the idea of the piece of gold. now think of somebody thinking of a piece of gold. now you have 3 pieces of gold. you can multiply your gold without end. but a premisse is that you believe that this is all happening inside somebody's head.

Mon, 12/19/2011 - 11:04 | 1993948 San Diego Gold Bug
San Diego Gold Bug's picture

I sold my gold stocks and the gld in 2006 and went all physical gold!  If someone owns the gld or slv for a long term hold they are a FOOL.  Buying physical gold makes your dollars disappear from the digital radar if bought correctly.  Check out this new site I saw on TFmetals last week,  It pulls the live price feeds from the biggest dealers in the country that post prices on their sites.  It is a great resource and saved me some money already.

Keep buying physical to give Wall Street the FINGER!

Mon, 12/19/2011 - 11:08 | 1993960 nathan1234
nathan1234's picture

I cant understand for the life of me how Goldman is still allowed to function. For the enormous financial crimes it has committed the firm should have been closed down and put into liquidation.

What spews from their mouth or pen is poison to the core.


Mon, 12/19/2011 - 11:10 | 1993974 Silversinner
Silversinner's picture

I will only invest in miners if they start paying the dividend

in real gold or silver.They should also keep a serious amount

of their gains into real gold,silver on their balance sheet(tnx mr Sprott)

Correct:they should keep all of their gold on their balance

and pay their workers,costumers,shareholders with real gold.

These miners could be the new banks and provide some

desperate needed competition against the banking cartel.

I know I sound stupid and naive,just dreaming and

stacking the real deal meanwhile.

Mon, 12/19/2011 - 13:56 | 1994680 oddjob
oddjob's picture

Ever heard of Sprott resource Corp?.....last time I checked they were over 2 tons of Au in fizz.

Mon, 12/19/2011 - 11:11 | 1993978 Youri Carma
Youri Carma's picture

The GLD is digging it's own grave

Altough this is a inconvenient situation for gold miners and shareholders it's in fact very bullish for physical gold because if it's unattractive to mine gold less new gold will enter the market while demand can only grow thus creating a good ol fash market shortage.

This gold shortage will put immense upward pressure on physical gold when traded higher on the real street gold market makes the GLD obsolete.

Mon, 12/19/2011 - 11:12 | 1993981 forrestdweller
forrestdweller's picture

will you trade my fantasized ounce of gold for your debt certificate worth thousand and eight hundred fantasized lollars? it's a short procedure, everything is electronic, you don't have to actually hand over the fantasized gold-ounce. it's just something we do on our computers. everybody does it nowadays. we flip the numbers over and over, and in the end, the ones that have a number with a minus sign before it, are fucked. you wanna play?

Mon, 12/19/2011 - 11:37 | 1994084 bill1102inf
bill1102inf's picture

You do realize that without the leverage created by the system that you mock that gold would be well below $1000.00 right?

Mon, 12/19/2011 - 11:45 | 1994135 Silversinner
Silversinner's picture

With the dow at a 1000 points and your montly

income of 200$ and medium home prices at

10.000$  you could be right bill with gold at

900$. ;)

Mon, 12/19/2011 - 11:36 | 1994078 bill1102inf
bill1102inf's picture

you mean, gold WILL get back to its Aug 2011 highs sometime in 2012??? Oh thank god, i was getting worried!! NOT

Mon, 12/19/2011 - 11:57 | 1994212 mess nonster
mess nonster's picture

Gold has no value. It is a medium of exchange only. Today, it is one in potentia, not in reality, at least not yet. The price of gold reflects the risk-free aspects of the global economy. Why? Because the only motive for buying gold is fear. "Investing" in gold is like investing in sunshine. There is no return, when calculated by the wares one is able to purchase. (In fact, when the shit hits the fan, and you emerge... you will likely discover that there will have been a huge increase in prices, and that the buying power of your gold will have shrunk alarmingly)

ETF's are "stupid" only when viewed from the bunker. They are a gold-shaped puppet designed to perform like an equity, that is, to enable somebody to MAKE MONEY from gold.

If you like making money, then invest in an ETF, or mining stocks, with all the appropriate precautions that pertain to investments everywhere. If you like putting money in cryogenic long-term storage, and coming back to see that yep, sure enough, it has remained perfectly preserved, then buy physical.

Comparing the two is apples and oranges.

Mon, 12/19/2011 - 13:02 | 1994257 Antifederalist
Antifederalist's picture

"Investing in gold is like investing in sunshine"

"There is no return, when calculated by the wares one is able to purchase?"

What?  Do your parents know you are on the computer?

Get a clue.


Mon, 12/19/2011 - 12:06 | 1994251 Stuck on Zero
Stuck on Zero's picture

It's an intriguing scenario and probably 50% right.  Another thing that keeps investors out of gold stocks is uncertainty.  Gold mining companies live on the hairy edge of existence: poor management, bad financial decisions, environmentalists, expropriation by governments, popular uprisings, protests, fuel prices, remoteness, guerrillas, mine collapses, earthquakes, capital intensive works, etc.  It's a tough existence.

Mon, 12/19/2011 - 12:39 | 1994361 FranSix
FranSix's picture

I definitely think that this is mostly an illustration of how illiquid the markets are in terms of gold. Gold doesn't just magically appear on the futures markets or in ETF vaults.

So what happens when a managed gold ETF is confronted with hypothecated gold assets and can no longer verify whether they have the gold they say they do or even take delivery any longer?

You would have to have an agreement in place to buy gold out of the mines.

Secondly mining ETFs are also very busily acquiring mining shares, which can take up the slack.

Mon, 12/19/2011 - 12:40 | 1994365 Georgesblog
Georgesblog's picture

It is the lack of integrity in the market that allowed MF Global to take the money and run, that has killed gold stocks. Investor trust has been broken. As long as the regulations allow comingling of investor funds, the market itself is complicit in fraud. Men can agree to anything and call it good, but judgment is inescapable. Though hand join in hand, the wicked shall not go unpunished. There is a higher court than any institution of man.

Mon, 12/19/2011 - 12:51 | 1994399 FranSix
FranSix's picture

Re: Rise in input costs.

The rise in input costs are mostly due to new IFRS accounting standards and in some cases a lower quality of ore when miners are very hard-pressed to produce out of a deteriorating asset.

Some new mines coming on stream have exaggerated their grades and found their production wanting, so they try to compensate by passing more ore through their mills.

Mon, 12/19/2011 - 13:10 | 1994500 Sun Tsu
Sun Tsu's picture

Paper passes for physical until it doesn't.  

If you don't have a gold mine, then find one.

Mon, 12/19/2011 - 13:12 | 1994508 Srgato
Srgato's picture
Did GLD And Other Gold ETFs Kill Gold Stocks?

Ya think?

Mon, 12/19/2011 - 13:22 | 1994550 cocoablini
cocoablini's picture

Miners used to be the futures market for gold. If they went up so did expectations for gold price. In a traditional market.
Derivative ETFs and counterfeit short positions have created a lot of noise and head fakes in the gold industry.
The implosion of MF Global points out that the paper futures market that has been having more control over gold price can evaporate overnight- and that retail traders can be stomped on by the bigger counter parties like JP. Gerald Celente was locked out of all his Dec contracts and he lost a million. Good luck suing and getting a nickel...
So all I have to say is when the paper clearing agencies all get caught the paper price will crash as its essentially a derivative. The physical gold market will be a secondary system that remains healthy but illiquid and miners who own ore and gold-in-the-ground will have a lot of pressure to increase gold money supply. So the real issue, as pointed out, is whether or not these idiot miners can get it out of the ground for under 600-800 an ounce and make a profit? So far, the costs of labor and fuel have been rising or steady.

Mon, 12/19/2011 - 14:02 | 1994710 ebworthen
ebworthen's picture


Money trapped in an IRA, but I'll take PM stock over GM, Citi, or BOA anyday.

Mon, 12/19/2011 - 14:41 | 1994882 forrestdweller
forrestdweller's picture

all those people with gold or silver in their name.

all gold- and silverdealers. trying to sell you their precious metals.

it might be a good idea, but it's still just marketing en advertisement.

i don't trust people with silver of gold in their names.


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