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Guest Post: Gold Stocks Prognosis: Catalyst, Please
Submitted by Jeff Clark of Casey Research
Gold Stocks Prognosis: Catalyst, Please
It’s probably the #1 question on every gold investor’s mind right now: Why are gold stocks underperforming gold? Aren’t they supposed to bring us leverage to the gold price?
Yes, they are, and their performance been both disappointing and puzzling. There are some exceptions, to be sure, but in the majority of cases the stocks are lagging the metal. And it’s been happening for most of the year. What’s going on?
I think part of the answer lies in the state of our current environment. Recent headlines and developments around the globe have ratcheted up fear… from the S&P’s downgrade to European bank solvency, from fears of another recession to worse-than-expected unemployment. The nervous climate has pushed investors toward gold for safety, simultaneously reducing the demand for gold equities.
You don’t say, “Hey, I need a new iPad!” when you live in hurricane alley and a storm is coming. You make sure you’ve got protection for your family. Likewise, fears of Europe’s debt problems ruining their economy don’t exactly make investors run out and buy Barrick. They buy gold.
First, let’s get a handle on how gold producers are performing relative to the metal. Here’s a chart that logs the weekly performance of GDX (the Gold Miners ETF) in relation to GLD (the metal ETF). Positive numbers represent the percentage by which GDX outperformed gold that week; negative numbers signal how much it underperformed the metal.
(Click on image to enlarge)
As you can see, while there have been periods this year when gold stocks have outperformed the metal, roughly half the time they haven’t kept pace with surging gold prices. This is not the picture of an asset that’s supposed to bring a leveraged return to gold.
So what’s going to move them? If I were a physician and gold stocks were my patient, I’d say, “Take two catalysts and call me in the morning.” Like some of these…
Less Fear, More Greed: We probably need a shift in the investing climate before gold stocks excel like we want and expect. An environment full of fear will draw investors toward safe havens and away from stocks. We don’t necessarily need a “roaring twenties” type of atmosphere (though that would help); we just need one where there’s a lack of constant bad news. Once investors feel the sharks have left the beach, they’ll be more apt to look for ways to gain a higher return than metal can bring.
What if Doug Casey is right about a Greater Depression, and fear is high for years? I think the better gold stocks still outperform in that environment. For starters, investors may fear that other assets won’t make much money; this has been the case with the S&P this year… and bonds could be next. A shift into stocks could also take place when inflation turns higher, as investors scramble to earn a higher real return. Last, history has shown that the natural progression is to move from the metal to the equities in a bull market. I think that’s our future, sooner or later.
Keep in mind the good news here: The gold you own is performing exactly as it should be in response to current events. We own gold for protection against the very things for which it’s supposed to provide shelter: failing currencies, lagging economies, and fear of inflation. This is proof that holding gold has been the right call and will continue to be the right call for the foreseeable future.
I don’t know when the shift from fear to greed will take place, but I’m convinced it will. And I suspect that the change in sentiment could be sudden.
Competitive Dividend Yields: Many gold companies have increased their dividend payments over the past year. In fact, every gold producer in the BIG GOLD portfolio except one has initiated or increased its dividend this year, many of them several times. Growing dividends could raise the eyebrows of investors and broaden the investor base.
That said, this is not a catalyst that will kick in next week. The current dividend yield of the gold industry is 0.75% (GDX is 0.70%); while this is up significantly since 2001, it is still less than half the S&P average of about 2.0%. However, as yields approach the levels of the broader market, institutional investors will be drawn to our little sector. Gold stocks could become core holdings, opening the door to an entirely new audience of investors. That’s a group that could light a fire under prices.
Governments: The CME hiked margin requirements on gold twice recently and five times on silver earlier this year. At some point a hike could be one too many, prompting investors to slow down on gold and turn to the undervalued equities to capture bigger returns. Another catalyst could be a government announcing they’re lowering tax rates on miners – a shock in the current rapacious environment that could see new money pour into the sector overnight.
The Usual Suspects: The usual sparks could ignite interest in gold stocks: a company announcing a large gold discovery… a sudden or unexpected surge in inflation… the gold price soaring 20% overnight due to some world-changing event... the public recognizing the potential in gold stocks and not just gold. Or how about a well-known investor or analyst outside the gold industry announcing he’s buying gold stocks? Could you imagine the impact on our tiny sector if, say, Warren Buffett declared he was adding gold companies to his portfolio? (He’s not exactly pro-gold, but you get the idea.)
I’m not saying any of these things will come to pass or are imminent. There are certainly other potential catalysts, too. My point is that sooner or later investors will be drawn – or perhaps even forced – into buying gold stocks.
The investment implications here are twofold. First, if I’m right, then the strategy should be to buy when shares are relatively cheap and hold for the duration of the bull market. You may think we’d suffer “opportunity loss” if we have to wait too long, but that could be a dangerous game; you could buy after they take off and miss out on some of the easier gains. Further, I don’t know of another sector that is both cheap and imminently poised to break out. The second implication is that corrections wouldn’t be a time to get out, but a time to consider getting in.
The ultimate prognosis, in my opinion, is that gold stocks are headed much higher. Sooner or later a catalyst will ignite interest in our sector, and the rush will be on. Now is the time to build positions in the stocks you want to own.
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Reality outperforms illusion.
really? Not so sure of that. Look at the illusory democracy we live in. Look at the deaths of JFK and RFK (and probably MLK). Illusion - they were lone nuts. Reality - the CIA and the bankers did it. Look at 9/11. Illusion - 19 morons with box cutters overcame the CONUS air defense system that had been operating successfully for 50 years. Reality - a complex but well executed scheme by Cheney, the CIA, and the Mossad to terrorize the populace and justify totalitarianism. Not so sure...
Let me revise: Reality outperforms illusion in the long run.
WTF is the matter with you people???
JUST BUY GOLD AND SILVER BULLION AND STOP TRYING TO MAKE A BUNCH OF LEVERAGED MONEY ON STOCKS!!!
Did you get that??
Stop being greedy and buying miners shares and JUST BY THE BULLION ITSELF!!
OK?!?!?!
As a junior and mid tier gold and silver equity investor, I look at my well selected stocks as real estate I own with lots of proven gold below. Casey Research advised GORO at .69 cents, I got in at 1.89, Sold half at 22.00 so, you tell me that gold stocks are a joke?
Don't knock well researched mining equities, they will make the poor wealthy, guaranteed!
What is shocking is that you have 25 people that agree with your lunacy about 9/11. You people that believe what he wrote aren't "enlightened", "red pill swallowers", or "intellectuals", you're idiots.
Not only is it possible or plausible that hijackers with box cutters took over those planes, that's exaclty what happened. American people are taught from a young age not to resist. In this case, I'm sure they (victims) thought they would be taken to some airport and some police negotiators would negotiate to set them free. That is 100% the problem and what caused the terrorists to be so successful.
Waiting for something you really, really, beieve in; such as "the great catalyst". is not acceptable in the world of business. People believe in all sorts of things; but Silver held at two to one margin doubles its currency value twice as fast as the price of the underlying, minus the margin loan interest, which right now is very small, and it does it in real time; not some day, when blue birds sing, and so forth.
There are some arguments against gold as a currency. Its truth or dare time. Who can answer?
http://seekingalpha.com/article/292757-europe-s-crisis-and-the-folly-of-...
1. "one of the most pressing problems faced by the U.S. in recent years has been the pegging of the Chinese yuan to the U.S. dollar. . ."
True or not?
2. "...the only adjustment mechanism available under a gold standard for a trade deficit country to counteract relative changes in unit cost vis a vis trading partners that hold a trade surplus is high interest rates and deflation. . ."
True or not?
3. "In the current global economic landscape, it is absolutely inevitable that under a fixed exchange rate regime (such as the gold standard) the U.S. would suffer from chronic PPP overvaluation of its currency. The reason is simple. Due to technological convergence over time, developing countries such as China will necessarily lower unit costs of production (i.e. gain productivity) at a faster rate than the U.S. This means that the U.S. exchange rate . . .would be chronically overvalued. This chronic overvaluation would lead to chronic current account deficits. Under a gold standard system, the result of chronic current account deficits would be chronic fiscal deficits, a chronic shortage of specie, extremely high real interest rates, continual recession, deflation and crushing unemployment."
True or not?
Speak, or forever hold your peace.
1) F what the chinese do is not "our" problem. they want to pretend they have a currency "equivalent" to the world reserve, they will continue to suffer the consequences. compared to our banksters, the chinese don't know fuking shit, and are "behind the curve" forever
2) F tariffs and/or goobermint subsidies of mfg (tax breaks/credits) may also help
3) this question isn't even real. it is the equiv of asking what frogs wld be like w/ wings. whether you are talking about the "regime" for the US only, or w-wide is ambiguous; no country would go to this standard alone; if it were a ww standard, the "currency" would neither fluctuate nor be "overvalued"
4) you are a fuking asswipe troll and a douchebag!
Dude! I don't even know where to begin in criticizing that BS article you are referring too. I hope you're being sarcastic by the true or not? It only caught my attention because slewie flipped out on you so bad and for good reason!!
Deflation only turns into a fully destructive force when Governments of countries like ours perpetually borrow money and attempt to inflate their way out. I wish we had "high Real interest rates" or atleast positive interest rates. Then I woulden't be forced into speculative investments at all
Under a "Gold Standard" chronic current account deficits are not allowed and impossible!!!!!!!!!!!!!!! That's why we always had a gold standard in the first place. The gold standard forces countries to get out of their recession causing mechanics... not vice versa!!!
The author of that article should be shot!!!
The author of that article is either a complete shill..trying to mesmerize his readers using circular logic and misunderstandings because of our new way of "complexity" Or is a complete moron!!!!!!!No the truth is economics is pretty simple. Those bubble heads and the journalism that supports it must perpetuate the myth that the average person would never be able to understand it...
I'm going to save this article because it's a whopper alright!!
I can't believe what I just read!!!
thanks for the laugh. the SA article takes vague understanding of economics and incoherent analysis to strange new heights.
No doubt!!!! That guy needs to back away from the gold standard bashing business... No he should run!!!!!!!!
Very funny! Imagine what a mess countries would be in if they adopted a gold standard...unlike now, when everything is running so smoothly without one! Crushing unemployment...check. Continual recession...check. Chronic fiscal deficits...check.
Ya!! If we're going to seriously debate a gold standard, idiots like this that push etf's and bond funds are beyond worthless!!
This guy whatever his name was will be used as the example of all the stupidity abound when it comes to gold.... no doubts!!
Hey what ever your name means, I am not even going to goog it...
We don't need your crap around here, next time bring something worthwhile so we can each benefit atleast a little bit...
Hey thanks, have been pondering this problem all summer. The first catalyst for a catch up might be QE3, but the clincher would be a return or partial return to the gold standard ... nothing to do but wait.
could happen sooner depending of what G7 will decide to do after this week-end.
nem looks like it broke out
Gold stocks give me heartburn, metal gives me security, stll, I bought some phys from Sprott today. Ive had better luck w/Sprott then the miners
Production costs will rise with oil imo. More investors want to hold the Barbaric metal minus the crappy management at some of these mining companies also. FCX is one of the few that shares the wealth with its shareholders. Some other just bonus their CEOs.
If the world really abandons fiat money in favor of gold, the value in gold mining stocks will be confiscated through windfall profits taxes, etc. No way the world's governments would let private businesses control the money supply.
Unless the whole experiment of government controlled money supply fails catastrophically.
After all the fiat currency’s fail and everyone (is dragged kicking and screaming ) converts back to a Gold Standard each and every nation will nationalize the mines in their country. Immediately after nationalization, mining stocks go to ZERO value.
Yes, and then is when you should buy.
Stawks are part of the fiatsco ponzi. Why bother with risk on trades when holding physical as real tangible value cripples the crooks?
I'm afraid that,sadly,Goverments don't control money supply, it is private corporations called Central Banks, that control the monetary policies of nations.The reason we are in this mess is because they can do whatever they please and no one may investigate them.In fact because they are in control they dictate to goverments what to do and we end up with unacceptable,for a free market,bailouts.You see the Bernanke's of this world can print money to infinity and inflate their way out of anything.Ofcourse confiscation of gold is not something new in the U.S.,as it has happened before during the 30's and that is the reason why some well known investors,like Mark Faber, propose to own gold abroad.So if they are to confiscate gold mining stocks they can easily enact another gold confiscation act as well.
The market doesnt believe that the high gold price will be sustained, its as simple as that. If the market did believe that near $2,000 prices would be sustained, gold stocks would be priced accordingly.
Or - perhaps alot of gold buyers are waiting for a market collapse and no matter how much the miners underperform the metals, buyers will not partake until after this crash.
Atleast that is what keeps me away!
The 500 point fall in the DOW in Aug 4th with another 600 point fall in the DOW the next Monday, while gold stocks rose (Eldorado 9%) didnt convince you ?
August 4th and the week after was the markets attempt at a 2008 redux and it failed.
Dream on
No, it did not convince me.
I dont consider 500-600 points to be a crash, merely a correction.
19 out of the last 24 trading days have seen triple digit moves - the waves get larger as the storm approaches!
When we get a crash, then I'll buy the miners, particularily the Juniors.
I'm in no rush.
And I'm not waiting on a dream, it's what most will consider to be a nightmare that will prompt me.
Think I'm wrong, OK - dont argue, just buy all the miners you like!
im all in, margin and all
The market doesnt believe that the high gold price will be sustained, its as simple as that. If the market did believe that near $2,000 prices would be sustained, gold stocks would be priced accordingly.
************
I think there's a lot of truth in that-
The market never believed Gold would get to 1900-but it did-
The miners gold is still in the ground.
Very easy to nationalize.
Ladies and Gentlemen, Boys and Girls...
The reason why the mining shares haven't performed is due to the ETFs available which offer investors "exposure" to PMs. ETFs such as GLD and SLV absorb a lot of the investment dollars that might otherwise move into mining shares if these ETFs didn't exist.
Many people don't know how to buy physical so in the past, they might buy shares of miners and now they buy shares of ETFs.
I put the word "exposure" above in quotes because the only thing investors in these ETFs are getting is exposure to losses.
substantial percentages, of outstanding juniors stocks, are being shorted
Physical beats any kind of paper for the foreseeable future.
I own plenty of miners, but I could care less about their current performance versus the metals. Why?
The answer is real simple - everyday my miners are selling gold and silver at these new high prices.
Those high prices are putting money and earnings into each shareholders pocket and will continue to do so despite low valuations. One day, the market will wake up when a $40 mining stock has the equivalent of $30 in cash per share and is earning $10 per share every year in earnings.
Ask yourself this: Why buy physical Gold or Silver for $1900 and $40 per oz when you can buy shares in a company that mines gold for $500 an oz and silver for $5 per oz? Right now the better buy is the miners without a doubt.
I am sure there will be plenty of people crap on me for even suggesting that buying the physical is not the best deal, but if you already own some physical why wouldn't you pick the best value? Right now, the best value is the miners.
SVM is pulling silver out of the ground as a byproduct for just around -$6/oz.
You are missing something here and that are the reserves they have.
What if they have nothing to mine in 2 years.
so you need to calculate
(Reserves/number of shares - Reserves*production costs)*gold price
That should give you an idea of the current value of the miner
I think the miners are acting the way miners did after the market crash in 1929-
They fell quite hard initially and drifted lower by about 30% then basically sideways for a few years until like now-they started to move and then came the rush-
This is the only downloadable chart-but i have seen snaps from old economic books provided by (Jim Dines)
There was also Alaska Juno Gold and Placer Dome and another company called Golddust that all had a similar pattern to Homestake-
It turned out Goldust was a soap maker-but it had the right name-
This is how gold miners perform in deflation-
http://2.bp.blogspot.com/_nSTO-vZpSgc/RbmMtplgCjI/AAAAAAAAAPk/NtN5JDlwHi...
Same shit happened in March 1978 after gold had outperformed shares for the better part of 1976 and 1977. From March 1978 to May 1980, the TSE Gold and Silver Index tripled with the old Vancouver Stock Exchange (now $CDNX) quadrupling.
Then in 1981, the humongous Hemlo discovery saved us from the 1981-1982 bear market and we were away to the races, exactly as KAM.V is saving our arses in this bear market today.
Shares will massively outperform physical over the next 15 months as all the quant geeks hand their bosses printouts showing broadly-improving FUNDAMENTALS versus Industrials and Tech (and everything else non-PM)...
The price of Silver went from $5.00/oz. to $25.00/0z. from Fall of 1979 to Feb. 1980; a 500% increase. It's always been possible to own the metal at two to one margin; and it is possible now. So, 1000% gross; minus the interest on the margin loan. there has never been any reaon to own either a gold or a silver mining stock. Beta, or leveraged, is obtained thru margin. In addition, you can buy the account up on margin at a dip and sell it down to "base" at a peak; and repeat; the result is an increase in ounces of metal owned. Monex in Santa Barbara is one of many responsible metals brokers who will sell, vaulted, metal, on margin. do not use more than two to one margin. Stocks are; Stocks. They are subject to many risks and problems which there is no guarantee you will be paid for carrying. This is an amateur trade; professionals don't buy mining stocks; they buy metal on margin.
There is always some degree of risk, even with Monex.
http://ocbiz.ocregister.com/2008/06/24/us-sues-monex-for-378-million-in-...
I have an account there but have learned not to over trade since the spread and commissions will eat any profits you make.
I made no money in my Monex account on silver's move from $10 to $25 and about 300% from $25 to $40.
For physical, go to Tulving.
Gold Stocks and gold are not the same thing. The Gold mining companies tend to overestimate their reserves to calculate a higher share value and borrow money for mining. Nobody should expect a 100% corelation with the actual physical gold price.
They hedge too. They might not be getting today's prices for today's production. This always gets mentioned when things are going in the other direction here, but it seems people only remember when its convienient for them to do so.
Can't see why it would be surprising. Gold in hand versus paper promises. No comparison.
KDX was on a terror today. Ripping shares off the ask. Unreal considering the tape and weekend risk
The catalyst for gold and silver stocks is going to be profits and higher dividends by the majors. As long as the trend of gold and silver prices is higher, profits and dividends will come. It will be the majors that lead the way. Keep an eye on the HUI gold mining index. It's finally over 600 and poised to jump to 700 fairly soon. Why? Profits are heading higher from these higher precious metals prices.
When will gold and silver stocks get investors attention? My guess is $2000 gold. Once we are over $2000 gold, the majors will be printing money. Investors will not be able to resist the current low valuations. And it will take some time for the majors to get overvalued in this market. Many of them are trading under their 2006 levels. Once the majors take off, the mid tiers and juniors will do even better.
I've been following this market very closely since 2004, and I have not yet seen ANY signs that a mania phase in stocks is forming. But I think it will. So far only a select few stocks have taken off, such as First Majestic, GORO, and Gold Canyon. Once a bunch of stocks make a move, we could be on the precipice of a mania phase.
If Pan American Silver and Silver Standard begin to rocket, they could take a lot of stocks with them. The same goes for Newmont, Agnico Eagle, and Allied Nevada. In my opinion, its not going to take much to light a fire under these stocks. Afterall, they are undervalued and looking at substantial profits.
I want to plug my gold and silver book, but I won't. That's not what this wonderful web page is about.
I will say that around 80% of my net worth is in gold and silver mining stocks. I think it will be very lucrative to be in mining stocks. But it is high risk. The smart play is probably still silver bullion. However, once we get to $75 silver, stocks are going to start looking better than bullion. That's when the mania phase in mining stocks will likely begin -- if it ever does.
"So far only a select few stocks have taken off, such as First Majestic, GORO, and Gold Canyon."
New Gold (NGD) is doing very well too. It's gone from 9 to 14 in the last three months, bucking the sector. Here's a link to a recent article on it:
http://seekingalpha.com/article/291531
I love to trade and much earlier on went into gold shares of numerous companies. I did this with what I thought was "due diligence" and sound logic. I did the Sedar bit, etc., etc. I sat there and sat there, watching my other metals go up, up, while my gold sat there, too. Pretty soon, I began to believe that I had been taken for a fool. I have come to believe that many of these small cap golds are just pump and dumps; in fact, I think that at least 50% of them are. Once burned, twice shy.
I have always bought gold and silver coins. I have never been betrayed by them. I will never buy a gold stock again. Other metals yes, with due dilligence.
I don't sell physical often but the miners were soooo undervalued that I had no choice (atleast in my mind) but to buy the miners....
Balence the risk/reward...put 25%-50% in NEM, GG, SLW, SSRI, HL, ......
Then the other 50%-75% in the quality juniors... I will not give names but they are mostly found in Canada, US, Mexico in that order....
Be careful buying juniors anywhere else as a general rule...
I personally would not trade rolls of silver rounds or krugs (whatever) for promises of future production anywhere else...
Nice.
I got leaps on HL and GDXJ. ETFs of silver and gold miners seem like a good play to me as you will limit the risk of the stock tanking if the country the miner is in nationalizes its mines. SIL and GDX might do well. www.etfdb.com is a good site to check out what any ETF is comprised of.
If those calls go my way a bunch before they expire, then i'll cash out and buy more gold and silver.
It's about time to stop whinning about the underperforming mining stocks and just get the idea. You made a mistake; fix it.
It's about time to stop whinning about the underperforming mining stocks and just get the idea. You made a mistake; fix it.
*************
Seems to me-when a sector is underperforming and largely ignored-is exactly when you should be buying-or is this time going to be different?
IQ 145
Margin traders can never turn their back, they're like antelope going to the water hole...
The miners are sooo undervalued it makes me sick.....
I believe and have spoken before on this topic... "Miners are banks" and should be viewed as such.. If the whole "they will be nationalized" and worth nothing then what's the difference between APLL and NEM!!!!!!
Actually just checked my portfolio ... been waiting so long for Highland Gold (HGM:LSE) to go up that I'd given up checking ... but it's just risen 50% for me in last few days. Could this be a sign?
Eh I've gotten some good returns on my miners, but then I put in only a fraction of my net worth, I saw it as gambling money. It will also be the first thing I liquidate when I need money for something else. There is a lot of gov risk in that sector, in regulation to outright nationalization. In an age of government criminality on an epic level I got to admit owning he miners can be risky, after all easier to nationalize miners then send out goons to every home in the country to grab wedding rings.
When people buy small cap miners, they do not check the Board of Directors. If they did, they would find that the same Board of Directors has several gold companies. Each of their gold companies has several projects. Each of their gold companies sells stock periodically to fund, suposedly exploration. But is it really executive salaries? Sometimes the "Boards" have companies in gold and in such things as iron (check out SOVZF).
There is a scam going on here. There is a reason small cap gold miners are not moving.
The catalyst is going to come from within the gold and the silver mining industries....there are going to be some major take overs as the larger miners have plenty of cash to acquire smaller miners with large reserves.
You think a buyout of a company such as Hecla by BHP wouldn't focus everyone's attention...there'd be a mad scramble to identify the next target, and the next.
Many smaller miners are trading at prices that are lower than what it would cost to replace what they are sitting on.
A corollary is that when Barrick spent $8 billion for a copper miner, instead of a gold miner three or four months ago, it sent a negative signal. It was after that that gold miners started seriously lagging gold.
The problem in the gold mining industry is the absence of an appropriate model for the economic condition. The entire gold industry is totally obsessed with an obsolescent model. This is because the investor crowd have a 'wide on' for disseminated sulfides over huge widths. This formula is supposed to be the basis for investment because of the likelihood of a buyout by a senior mining operation.
The model that worked during the depression era was one of small mines with paltry processing rates that paid dividends. The true discoveries were made during the era of the 'Rich Man's Panic'(1907) or before the turn of the century at the end of the long depression. Ppl. don't 'get' what is required under the circumstances.
And gold companies are almost universally guilty of massively diluting their shareholder base. There probably isn't a single speculator out ther that can name the correct geological conditions that make up a gold deposit. Nobody seems to have the slightest notion how to value a gold mining business, nor do they seem to know just what kind of a dividend a gold mine can pay out.
Junior Miners RBY, TGB, and UXG currently oversold with lots of heavy metal in the ground. I guess time will tell if this sector can lead the way since they're supplying a product that's being ripped of the shelf!
RBY was given notice from the regulator to restate their compliant resources and grade, because they were obvious gross exaggerations. This is the only gold company you mentioned here. They are not in production. Goldcorp recently bought out Golden Eagle with the actual numbers to interest them in the Red Lake camp. Do you know whose numbers RBY conveniently match? The former Golden Eagle. Guess who made the complaint to regulators for obvious excesses? A concerned corporate citizen.
TGB, Taseko mines, is NOT repeat - NOT A GOLD MINER. They mine COPPER. COPPER NOT GOLD. They have a prospective deposit in an environmentally sensitive area which has been turned down multiple times by both federal regulators and the province of B.C. Their mining operation would affect the local grizzly population. With the recent conservative majority in Canada, the company believes it can slide the project past the regulators. There is major public opposition to their project. Taseko also had a significant insider trading scandal brewing due to somebody trading on insider knowledge prior to the public announcement that their project was turned down. Major projects such as a vast hydro-electric project propsed for the Stikine valley and the Kemess mining project have been turned down. Uranium exploration and mining has been banned in the province.
UXG is NOT repeat - NOT A GOLD MINER. They explore for SILVER. SILVER, NOT GOLD. There is no production out of this company. UXG is riding on Mcewen star quality for having been a former CEO of a successful gold company. The top geologist who calculated where GG was to find their high grade deposit in Red Lake years ago ran Fronteer, recently bought out by Newmont for their Nevada prospects. Mcewen is NOT - repeat NOT A GEOLOGIST. Mcewen was ousted from the board for opposing Goldcorp's interest in acquiring a copper/gold deposit.
Here is another 'gold' company facing scrutiny:
http://seekingalpha.com/article/289368-will-goro-ever-find-that-magic-pot-of-gold
There has been a recent effort to force gold miners to their state costs realistically due to pressure from the regulators inside Canada. GORO does not list on the TSX, nor is it located in Canada, so its not required to comply with any sort of mining regulations. Recently GORO stated it would issue its own coins. The only coins that they should be issuing are those stamped by the government.(which will do it for them obligingly) Very highly likely you will find these coins will be a mix of silver and some gold, which is their by product metal. This is the 'Glen Beck' of the mining industry.
Thanks very much for posting this. Several times I've nearly fallen for Rob McEwan's sales pitches and bought into one of his junior companies. When he sold his interest in Rubicon he said it had nothing to do with the company or quality of the deposit...not much later Rubicon admitted overstating its reserves. At that point, I decided McEwan might not be a real straight-shooter with the public. Your post fills in the picture...thanks again.
Gold stocks are for SUCKERZ!!!
unless you are a Principle you WILL NEVER SEE ANY REAL GAIN!!
Buy Monster boxes of Gold AND! Silver Coins and call it a day!
This is the exact reason why I just can't commit fully 100% gold bug take it or leave it, screw everything accept the shinny stuff...
I guess the punches have to come out!!!!!!! believe me when I say that nobody and I mean nobody has seen increases in the last 10 years like those that bought the chinese panda rare dates, lunar animal, unicorn/peacock coins or anything in Proof -67 or above of anything from china in the 80's and 90's...
Not even you IQ 145
You are lying if you say you have!! (period) This has been THE place to be!!!! Period!!
That said, I can't afford the 5-oz unicorn gold... 1996 Rat silver lunars anymore.. Or the 1987 Twin Tower Platinum Panda ..................................
So, I look to what is most undervalued in this time and place
Physical gold is the only way to go.
I'm still clutching on to many gold shares from 2003 - 2005, many are still down even though the price have gold has gone parabolic and the price of oil hasn't gone anywhere and the price of steel has outright collapsed.
The "Ratio Traders" have made huge fortunes shorting UXG, TRX, NG, etc. while going long bullion.
Pretty much the same trade as the guys who are long Brent Crude and short UNG. Absolute fortunes have been made.
Some of the miners drove investors away a few years ago with their hedging programs. Also ETFs have made it easier to play the metal.
Bottom line is this.
Why are hedge funds still clamoring over the likes of AAPL, PCLN, LULU, ULTA, CMG, etc which have outrageous market caps and huge PE ratios?
When the same money used to buy all these crazy mo-mo names could have been used to buy all the open interest on the COMEX and stand for delivery.
Or, buy the entire junior mining stock basket in one fell swoop.
Millions of hedge funds out there.
Trillions of capital fleeing from one group to the next.
Look at all the money flooding like a Category 7 hurricane into U.S. Treasuries and California Muni Bonds.
None of that money is going into PM stocks.
Dumb money?
Wonder how General Jim and Rob McEwen feel when gold is skyrocketing yet they have millions invested in their company's stock, is stuck like molasses at the lows? And "smart money" guys at Fidelity, Vanguard, etc. are chasing freaking beauty supply chains like ULTA salon?
All I can say is that they must staring slack-jawed at their screens pulling their hair out.
Well, at least they didn't buy any solar or shipping stocks.
LOL...
actually 'tard, i would bet both are quite at peace with themselves given the 400% they've made on gold the past 10 years, and the 700% they've made on silver.
yet again you're projecting your miserable existence onto 2 highly successful men, green with envy of their success, but too lazy to put the keyboard down and get to work making a go of your part-time, contract 1099 processing job. basically, you're looking for a big hit in the market, forgetting that gentleman jim sinclair and rob mcewen worked a lifetime to get where they are.
Who in their right mind would call this guy a tard.... tard
? McEwen loaded up UXG in the low 2s.
Focus on countries where the miners already own the government and have proven that by seeing-off windfall taxes. Hint: here be kangaroos.
straight salesman's con---sounds like the G-7 making excuses and promises---oh, excuse me, i mean catalysts
I don't know the reason for miners underperforming for sure. One reason that was given during the last period of commodity inflation is that miners were taking higher costs due to higher oil, etc, hurting mining activities, but I suspect that this is not the main reason. I think the main reason is the same reason that loads of other higher quality stocks have been underperforming relative to crappy stocks, leading to traditional hedging strategies no longer working and hedge funds leaving the game.
The market is broken.
As has been discussed many times by ZH, we have a constant melt-up going on. It happens across the board, in all stocks regardless of fundamentals. I suspect this is due very much to the influence of ETFs which dumb down stock selection and peg stocks together (that are covered by the ETF), based on weighting in the index. It could also be contributed to by active HFT strategies that hunt for short stops, or my some kind of macro buying approach (PPT).
The exact reasons aren't important but the effect is. Constant meltup means that stocks with the highest short interest will end up rallying the most during melt-up as short stops are more vigorously enforced than long stops (an asymmetry in the market). In other words, many bulls, the dumbest of the dumb money will quite happily ride a massively underwater position for years, but bears are much more rapid to enforce a stop loss, creating an asymmetry. Meanwhile, high quality stocks, like gold miners, don't move so much and as the biggest pigs melt-up the most, it attracts heat mappers to exacerbate the trend.
Take home message is that if high quality stocks are underperforming, you're being given a gift because the thing with the melt-up is that it works until one day it suddenly doesn't, and when that happens you see a shockingly rapid collapse in pig stocks. Our broken markets become more and more binary with each passing day. A pig stock is either awesome or bankrupt. Pig stocks are behaving like credit entities, with the crappiest entities paying highest yields due to higher risk. I see this as evidence that the derivative tail is wagging the stocks dog.
Take home message is that if high quality stocks are underperforming, you're being given a gift because the thing with the melt-up is that it works until one day it suddenly doesn't
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Yes-when risk turns to fear and it starts looking for real PE value-the miners will be like a flashing beacon-
The legitimate producers have some good numbers to back it up-
A lot of speculators have been piling money into swindles. Or into investment scenarios that have risky fundamentals. Stocks which are outright swindles will very likely be carried off in the tsunami.
I can't imagine what it would be like to be invested into Northern Dynasty minerals today:
http://business.financialpost.com/2011/09/09/for-sale-rich-but-risky-ala...
What is a definition of a gold mine? A hole in the ground owned by a liar.' Mark Twain.
How did Rob McEwen make his fortune...
By rolling the dice on the Red-Lake Mine...... That everybody and their grandmother's kitchen sink said was a sinkhole
Fortunes are made on paper, small fortunes and security are kept through the shinny stuff.
You have to have both............
me thinks.........
McEwen has a ton of his Goldcorp winnings in UXG. Must be driving him mad that nobody wants his stock.
Instead, they are chasing AAPL which will probably have a trillion dollar market cap soon.
Or Salesforce.com which has a PE ratio of over 600.
And don't get me started on the REITs.....
PS: Robot Trader I gave you greenees, i usually do..............
Never met the man (RMc) but what a warrior. I just can't accept with all the 'confiscation' paranoia out there that goldbugs woulden't hedge that and all the supposed riches they sit on wasn't put into the miners!!??
Who cares why they are underperforming? The central reason for buying gold is supposedly to be free of counterparty risk and other forms of financial and regulatory risk by holding physical gold or its equivilent. Buying gold stocks does not put gold in your hand, it puts an electronic blip in your brokerage account. It puzzles me to see gold true believers buying paper stocks because their shares are many steps away from the underlying asset, gold. The fact they that they can trade at a discount is, in itself, reason enough to stay away from them.
It puzzles me to see gold true believers buying paper stocks because their shares are many steps away from the underlying asset, gold. The fact they that they can trade at a discount is, in itself, reason enough to stay away from them.
**********
huh?
Buying gold stocks with the dollar poised to strengthen makes good sense-
Holding physical gold and selling it when both gold and the dollar are strong and asset prices have crashed makes even more sense-
Money in deflation is king and gold is money and the the gold stocks that will eventually reflect the gold price can be sold for more money in a strong dollar-a win win
Just make sure you buy tangible assets with your profits because the dollar will not be strong forever--
Doing lots of things at exactly the right moment is smart so I hope the future comes to pass, exactly as yor plan envisions. I am smart enough to realize that I cannot predict the future as accurately as you can, which is why I hold physical and avoid paper.
Wish I read this about 3 years ago.
Buying coins and bars would have proven a far better use of capital than the miners I bought instead.
"""It puzzles me to see gold true believers buying paper stocks because their shares are many steps away from the underlying asset, gold."""
i almost agree. it puzzles/offends me when people suggest gold stocks as substitute for physical gold (with more upside!). however i do not think the article is making this argument. certainly gold vs gold stocks achieve quite distinct investment objectives, respectively.
it is a much stronger statement (and incorrect in my view) that merits of physical gold preclude gold stocks as a reasonable investment option. many people invest in physical gold as well as equities. so it is not surprising to see such investors focus on opportunities in gold stocks if they separately understand gold.
There will be a catalyst soon. The miners are starting to percolate. Note, today the Euro is starting to come apart while the dollar has strengthened. This will cap gold or at least slow it down in dollar terms while gold in Euro terms skyrockets. GLD may stall for several weeks while Europe implodes, and we'll start to see blow out earnings from the miners. RBC changed their gold price assumptions a couple of weeks ago and raised price targets on their favorite miners by 30%. Other analysts will follow. Remember, analysts were slow to raise their crude price assumptions for a long while until they realized prices weren't going back to $40 bbl in our lifetimes. As the global economy slows down, where will there be earnings beats? Note that miners biggest input cost is energy, and crude has weakened. Everthing is lining up for miners. Watch the new high list when the market bounces next.
I heard this same sales pitch 3 years ago and i'm still underwater.
Forget it. There are far better places to invest than gold miners.
What an educational thread this is so far. I've been considering the junior mining stocks, but it would be like a beginner sitting down at a Vegas poker table. (stoopid)
I know yall have some good insight, keep it coming.
input INPUT...
I'm a newbie to gold stocks like you.
I'm investing in the unhedged majors; i.e. the ones that comprise the HUI. That is essentially what the HUI is; it identifies companies that are unhedged, or have minimal hedging constraints.
Gold miners are generally deemed now to be cash rich, and they will likely identify the juniors with the best prospects, and buy 'em up cheap. Trust the majors to know these things better than us, be wary of thinking that you can know better.
I totally agree there is a risk of nationalisation etc on miners; however, there comes a point when investment in physical requires diversification, rather than further physical. I agree with Shameful; mining stock investment is like gambling money. High risks, high upside, and a bit of fun.
Goldmoney and Bullionvault also really come into their own as further diversification strategies, rather than as being superior per-se, to owning physical bullion.
Finally, do not understimate jewelry as diversification. If the gubmint covers after our physical, either through confiscation or taxation, jewelry will probably be exempt. No matter how corrupt or stupid they are, most male leaders have wives, and I very much doubt that women leaders would dream of taxing or confiscating jewelry.
Yeah jewelry comes at a hefty premium; it makes no arithmetic sense. Instead, as stated already, it is diversification, and for us married blokes, it further serves as a powerful bargaining chip in the marital arena (and that has its own value!).
Hickey's "High Tech Strategist" (despite the name) is not a bad start. It is a subscription.
- Ned
Are there any gold stocks that pay reasonable dividends or are they all speculative.
Gold mines don't sell their material at daily spot. They sell it based on futures contracts. Unless they are willing to repurchase underpriced futures and reissue at market prices, nope, they ain't gonna be pulling in the high profits from the high spot values. Simple at that really.
Gold doré produced out of the mines is brought to the refiner who assesses the gold content. The gold is valued according to spot, usually on the Friday close. Gold miners will give you the average value of spot prices over each quarter. Its called "average realized value."
Gold miners have no need for the futures market whatsoever, because they pull the gold, the real stuff out of the rock. Futures markets don't mine the gold.
Gold mines have operating costs that require cash up front... durr. It's almost like the entire point why futures were dreamed up in the first place.
paper = gambling.
15% max allocation.
What is a definition of a gold mine? A hole in the ground owned by a liar.' Mark Twain.
Talk Digital/Exploration Insights
Brent Cook talks with Danielle Park on his methods for assessing a property for investment:
http://talkdigitalnetwork.com/2011/09/turning-rocks-money/
Brent in the field with a hands on approach to exploration:
http://www.youtube.com/watch?v=F49kWYc9x4o&feature=related
I have a few hundred shares of IAG and KGC bought at 40% higher prices. They haven't done anything but return to me the calls I sell against them on any uptick.
Just to get rid of these dogs I wish I was called away even at a small loss.
I will never own another gold miner without doing a Buy/Write. The option no longer than 90 days out. On second thought forget that last sentence. And the one before it. Never again.
What a buncha bow-wows.
Great info in this thread and I agree with most of the cautions so won't reiterate in detail.
Starting around 2003, I went BTTW juniors and explorers and suffered mightily through all sorts of crap, but good research and intuition landed me in a handful that paid off by factors of 10-20. Net result was huge gains after an enormous input of energy and lots of stress.
Early this year, I sold it the last positions, and even bailed on retirement funds. That was a very tough call.
My opinion, FWIW, is that there will be a big run up in miners sometime during this crisis. But the timing is beyond difficult and enough to make one crazy if you invest too much. What can go wrong?
Huge market crash, dragging many to the floor
Some going out of business due to economic conditions
All the dilution/back room deals that make the boards money and not you
Acquisitions when the market drives the price down to almost worthless
Brokers going broke
Government freezes on various accounts
There are many more risks that I don't want to bother enumerating. I'm watching for a moment to deploy some funds that I don't mind risking, but know full well it is a huge risk (and possibly big reward). It's just not a time to be naive.
peak gold.
It costs more and more energy (or, more and more money)
to get less and less actual production.
A bird in hand is worth two in the bush ....
The ONLY problem I have with gold stocks can be summed up in one word - nationalization. It may seem that only dinky little countries run by certified loonies would do such a crazy thing - after all, there's the rule of law, contracts, credit ratings and all those persuaders in place to make any sovereign nation think twice about taking the property of foreign corporations, which means that even if a few little dinks do go ahead and nationalize, most wont.
However, I think that most of us have no idea how crazy things are about to become, and it may very well reach the 'every man for himself' stage among nations sooner than we think. Under those circumstances, why would any country, including the so-called 'advanced' ones, allow the only thing standing between them and insolvency to dug out of their national soil and exported to someplace else? After we see a few rounds of currency wars, trade ways, sovereign defaults etc, I see no reason at all why governments wouldn't move to nationalize all valuable mineral assets including gold, silver and oil. After all, if everyone does it, what's the risk? We all just get together and re-write international law afterwards, and let the shareholders of these foreign companies ( who we really don't give a damn about) take a 100% hit. Tough luck. You shouldn't have been so quick to give your money to companies whose only business is to steal national assets from other countries. Or at least something like that will be the argument.And as for the 800# gorilla international law enforcer with all those Tomahawks and aircraft carriers and nukes, what are they going to do - kill everyone?
I wouldn't touch the shares of any company in the business of extracting wealth from the ground anywhere in the world. And I'm speaking as a guy who used to love the game of finding juniors that would increase 10X in a few months. Even made a few bucks that way. Never again. It's now a suckers game.
The gold mining stock bull has already started. The entire sector has been moving up steadily since the start of July, and been completely unscathed by the current turmoil. It's a small sector, with lots of volatility, but when it moves, it moves quickly, and when the institutional money gets committed (which is what's happening now) the volatility drops off and the retail trade starts to get drawn in.
This pattern isn't new, and I always find it funny reading all these opinions as to why this time we won't get a gold stock mania, given how many there've been in the past. Just the bear-side variation of the old 'this time it's different' line I suppose.
It's never different, though, never. As a species, we're laughably predictable in our inability to learn from history.
I can see now this would be a very risky move, and newbs should stick with physical.
It sounds like a crapshoot. For the layman, holding the metal is the easiest and safest way to protect your family in these times.
Thanks, and good luck to you all.
I agree that buying gold/silver and buying mining stocks are 2 different things: one reduces risks to your wealth; the other increases it. So don't underestimate country risk when buying miners, and be sure to diversify! And find an advisor who is a geologist (Brent Cooke, Rick Rule). And pray (just kidding). It also pays to watch your mining stocks closely...you don't have to abandon ship at the first sign of trouble, but you definitely should get out as soon as the 2nd one pops up.
I remember 2008 very clearly.... as my Gold stocks sucked horribly and the metal dragged as well.
I learned quickly the real money is trading the markets but to keep a little in metals while I do it.
i feel better leaving my gold in a safe instead of exchanging it for fiat currency
mining companies might become more valuable if they simply left the metal in the ground
when it's all dug up, it's the bullion that will explode in price, not the share price of the mining companies
if the chinese wanted to buy a mining company with ten years of in-ground reserves, but before the deal went through, the miner doubled production. would the potential buyer then think they should pay more for the company? ... at the current rate of production the life expectancy of their reserves would be cut in half to five years.
if only one miner decided to keep all their reserves in the ground, then when metal production truly dwindled. they'd be the last man standing and in a position to truly take advantage of the price explosion
for a very long time, it hasn't been a very good idea to exchange golden assets for fiat promises .. and i'd assume that goes for miners too.
if they'd all stop producing, well .. they'd all get very valuable exponentially. the problem as it is now ... when eventually there is no gold to buy, and price explodes, the miners will not have any to sell either. but bullion will still be king
but believe the hype if you will ... look!, see how cheap we have made the miners for you! please please go buy shares in dwindling reserves, and leave the precious production for us to buy. we need the real thing because we have shorted it beyond recognition.
This goes back to 1997:
" The salting of crushed core samples with placer or supergene gold constitutes the most elaborate fraud in the history of mining. In 1997, Bre-X collapsed and its shares became worthless in one of the biggest stock scandals in Canadian history, and the biggest mining scandal of all time."
http://en.wikipedia.org/wiki/Bre-X
Kinross vs. Gold
KGC vs. $Gold stockcharts.com
http://ow.ly/6r4D7
The prognosis is that there was a major peak for gold mining in the 1990's, which was capped off by the biggest fraud in the sector in history. The bull market in gold mining shares was apparently much bigger in the 1970's.
This is the overriding factor in the gold mining sector, that it consists solely of fraud.
Uh mining produces gold silver uranium lead copper. It's customers are lying bankers and psychotic military people. Of course it's riddled with fraud. All you get out of mines are utiity items that most people want and need and are good and bullets and bombs and sulfates to make plastic explosives and all that other crap.
Updated SP500 monthly chart at blog.
My long term indicators continue to warn of significant USD strength and AUD / NZD / EUR etc weakness and these signals have increased since 2009.
Unfortunately the March 2009 equity lows eventually will be breached.
http://stockmarket618.wordpress.com