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Guest Post: Gold Surging - Buy Mining Stocks? Not So Fast, Says Frank Barbera

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Tue, 08/09/2011 - 00:29 | 1541262 The Peak Oil Poet
The Peak Oil Poet's picture

 

 

when all is falling 'round our ears
and markets crash and burn
it's saftey that you cherish most
it's not a "sound return"

 

http://thepeakoilpoet.blogspot.com/2011/08/i-surely-do-love-silver.html

Tue, 08/09/2011 - 00:36 | 1541293 hedgeless_horseman
hedgeless_horseman's picture

The heights of great wealth
reached and kept
were not obtained
by sudden flight.
But we, while our
companions slept
where reading Tyler
in the night. 

 

h/t Longfellow

Tue, 08/09/2011 - 00:39 | 1541313 egdeh orez
egdeh orez's picture

While I shared the same wariness toward gold mining stocks (and it's correlation to all risk assets), I think he should also consider the fact that the price of physical gold is now decoupling from other risk assets which it was unable to do during the '08 crash... so this time might be different.

Tue, 08/09/2011 - 00:47 | 1541339 Spitzer
Spitzer's picture

Thats right.

 

Did this idiot asshole miss today ? where was he ?

I was expecting a bloodbath too, and I didnt care because physical was sky rocketing.

With all this money sloshing around, gold miners will get a bid. China is probably about to go on a buying spee.

Premier Gold +10.27%

Agnico Eagle +3.21%

Yamana +3.71%

Eldorado +5.66%

Tue, 08/09/2011 - 00:57 | 1541364 BaBaBouy
BaBaBouy's picture

 

The mining stocks have been in decline since March.

 

My bet is its the seasonality stupid.

We may go down a bit more here, then the real bull market starts into next year, normal PM Stocks seasonality.

 

$2000 GOLD will help a lot too...

Tue, 08/09/2011 - 01:06 | 1541386 Spitzer
Spitzer's picture

dp

Tue, 08/09/2011 - 01:05 | 1541392 Spitzer
Spitzer's picture

The mining stocks got a safety bid on August 8 2011 when the whole fucking world was collapsing.

The cost of mining is falling, look at crude.

Tue, 08/09/2011 - 01:19 | 1541423 Michael
Michael's picture

Rollover-1981- Depiction of Global Worldwide Economic Collapse in 2011

http://www.youtube.com/watch?v=6butfe1f9Hg

Tue, 08/09/2011 - 01:55 | 1541484 Raymond_K_Hessel
Raymond_K_Hessel's picture

Exactly, the miners dig up gold, which has gone up $200/oz while the miners have fallen, and we're supposed to wait for a better entry? I mean if GDX was almost $60 two weeks ago when gold was around $1,540, how can it only be worth $55 now that the price is $1,740? Oh, and as you pointed out, oil, one of the major costs associated with mining is down hard. So the production costs are falling and the product they're selling is skyrocketing but I shouldn't buy because the charts don't look right?

Tue, 08/09/2011 - 01:40 | 1541463 caconhma
caconhma's picture

<When you look at Barrick Gold or Newmont Mining you see 13, 12 times earnings, multiples relative to cash flow that are near multi-decade lows. I don’t disagree with any of that. I think that the mining stocks are a great value on the fundamentals.>

 

Let us see

·         ABX and NEM have PE 12 and 10 @ gold prices of ~$1500

·         Consequently, @ gold ~$2,000 the same PE will be 8 and 6

 

As of the last weekend, neither euro nor US$ nor US treasuries are “the safe havens” any more. Only gold left with the FED are printing and printing.

 

Now, maybe I am an idiot but in my opinion the “big WallStreet games” are over and markets will go back to the economic fundamentals. As of today, gold mining companies have the same market values they had when gold was `$1,100. Now, gold is almost 60%+ more expensive. In other word, gold mining companies are priced as if gold will go back to $1,000. This possibility is out of question!

 

With PE ~6-8, gold mining companies will be hugely attractive. Fundamentally, we are looking at one in a lifetime opportunity!

 

PS

Do his charts show where gold will be 3, 6, 12 months from now?

Tue, 08/09/2011 - 06:01 | 1541640 Snidley Whipsnae
Snidley Whipsnae's picture

"In other word, gold mining companies are priced as if gold will go back to $1,000. This possibility is out of question!"

I am long physical. That said, never ever ever say 'this possibility is out of the question', regardless the context.

I can point out a simple scenario where gold could get clobbered any day, of course I hope this doesn't happen. Suppose for a moment that the Fed sees it's mandate evaporating if the dollar goes to zero or near zero purchasing power. Suppose the US Treasury believes that the US Gov will collapse if the purchasing power of the dollar goes to near zero... What would they do? Well, one thing they could do, but probably won't, is jack interest rates Waaaay up. That would definitely constrain the price of gold. It would also collapse what remains of the US economy.

So, never say never... We don't know what any Gov will do to prevent repudiation by it's citizens.

...and I have yet to find a crystal ball that works...

Tue, 08/09/2011 - 01:42 | 1541467 rosiescenario
rosiescenario's picture

Yep...today was an acid test, so to speak...

Tue, 08/09/2011 - 01:18 | 1541422 rosiescenario
rosiescenario's picture

Agree...we may learn more tomorrow as HL should report before the open...their earnings should be very good so we may see how they get treated in what should be pretty terrible market conditions.

 

Here's another factor that is going to influence the mining stocks going forward. If silver and gold keep going up, the miners are going to be minting money....and that is going to lead to many buyouts of the smaller miners by the bigger ones...I have been an investor in mining stocks for 40 years...the levels we will be seeing in silver prices will drive the companies producing the metal...what are investors going to do with all the cash they end up with from selling? Buy bonds??? No, they are going to be buying mining stocks...and they will be competing with other mining companies also buying out companies....far quicker and easier than prospecting and then trying to get a new mine up and operating.

 

I also think that the people who have already bought the PM miners are not like the momo types who buy Netflix and do not know what they actually own...they only want to be on a north bound train. Investors in mining stocks are buying earnings but even more importantly they are buying the PM in the ground, waiting to be mined and refined. It is a very different mind set.

 

 

 

Frankly if this guy is right and the mining stocks get whacked, I will be buying more and also using options, because this will accelerate the buyouts sure to come in this industry.

Tue, 08/09/2011 - 01:25 | 1541438 Spitzer
Spitzer's picture

There will be QE 3, if there is not then supply lines will be shut and tanks will be in the streets and people will starve.

Gold mining stocks will ride the QE3 wave.

Tue, 08/09/2011 - 06:10 | 1541646 Snidley Whipsnae
Snidley Whipsnae's picture

Perhaps QE 3 Lite, Perhaps undisclosed purchases of treasury issues, equities will be sacraficed on the bond alter. History is on my side.

Of course there will be token intervention to prop up equities... but it will be a sham and shortlived.

Right now is the time to be physical... paper is on fire.

Tue, 08/09/2011 - 01:50 | 1541479 FreedomGuy
FreedomGuy's picture

A large part of my portfolio is in mining stocks and funds. It seems to me that as metals prices rise while production costs decrease, i.e., energy prices, labor, etc., that their margins should blossom. In the short term they may get sold to raise cash. Today they did not follow the market down all the way.

So if the underlying asset is rapidly appreciating while the production costs are steady or dropping their should be a stock appreciation, right?  where am I wrong in my reasoning?

I personally don't get the decoupling of the mine stocks and metals prices. Nothing in this article tells me WHY mining stocks might or should drop 50%. Hell, the market is in free fall and it is not yet down that much.

Tue, 08/09/2011 - 02:01 | 1541494 Spitzer
Spitzer's picture

The value is already there, it has been for some time. It is there for the taking.

 

Tue, 08/09/2011 - 03:08 | 1541560 New World Chaos
New World Chaos's picture

Fears of nationalization, or perhaps naked shorting to indirectly manipulate the price of gold?

Tue, 08/09/2011 - 06:07 | 1541645 Snidley Whipsnae
Snidley Whipsnae's picture

FreedomGuy... How many times did you hear 'get out of paper gold products and paper in general'?

How many times did you hear 'trying to play with leveraged paper, or unleveraged paper, in front of an onrushing locomotive is insane?

How many times did you disregard this advice?

Why are you whinning now?

Hey, I got kicked off several sites because I advised people to 'get out of paper now'! You think I feel sympathetic toward those that laughed at me and then kicked me off?

 

Tue, 08/09/2011 - 06:38 | 1541664 whopper
whopper's picture

Frank Barbera huh.....I used to listen to that guy years ago on Financial Sense radio. He looks at charts and that is it. He was wrong so much he got deleted. The guy reads charts.....the chart says.....patterns.....Those folks are looking at the past. Sure the charts might be right, but so is a dart. You really have to watch all the assholes with their opinions in this biz. 

Tue, 08/09/2011 - 02:02 | 1541495 The Peak Oil Poet
The Peak Oil Poet's picture

 

the night brings tokens of the day's surpise

but the efforts in daylight are the acts of the wise

the PoP

Tue, 08/09/2011 - 05:47 | 1541630 janus
janus's picture

half a league/

half a league/

half a leage onward/

into the valley of death charged the six hundred...,

 

and away we go,

janus

Tue, 08/09/2011 - 06:13 | 1541648 janus
janus's picture

oh, and hedgeless, there's this "parable" in the NT about this bloated and turgid mushhead who thinks himself all fat and dandy.  well, this blighter decides to rig markets and gather all things unto himself; and that's not playing the game, is it? anyway, cheating has it's spoils, no doubt -- but it's a bitter cup.  so, anyway, this disease was of the acquisitive sort, and got lots by hook and crook in that regard...in the NT it says he built up store houses, blah, blah, blah.  anyway, the story concludes true to form: bad shit happens and "this day your life will be required of you"  says The Word to the plague...and so he died, and the people did feast at the storehouses and marry his daughters.  True story.

and there's also this other "parable" about this no-account, slack-jawed rube who was given a talent..terrified of a stern master-market he goes and hides it under a rock.  if you're about to guess, "the rube gets thrown into the pit of darkness where there will be weeping and gnashing of teeth."  you are either a student of Scripture or you know how stern master-markets go.  anyway, the others that took the gift of the talents and multiplied their masters holdings (good stewards) were rewarded with 5 and 10 cities to rule over and abound therein in concubines, respective to their relative success and prowess with concubines.  and so the moral of the story is: janus is thinking he should be a trader.

Tue, 08/09/2011 - 00:33 | 1541283 Dave Thomas
Dave Thomas's picture

Better not, it only takes $5 bucks to dig it out of the ground. Or was that silver? OK $17 bucks to dig it out of the ground.

Tue, 08/09/2011 - 00:34 | 1541285 zorba THE GREEK
zorba THE GREEK's picture

_perfect timing for the article. I was calling my broker in A.M. to make major investment in GDX & GDXJ.

Now I will wait for better entry point.

Tue, 08/09/2011 - 00:34 | 1541288 time123
time123's picture

Gold is one of the only investments that has been rising constantly over the recent months, and years, including now that we are in bear market territory. It was featured again this week for those who pay attention. Its futures are hitting 1770 as we speak, well on its way to $6,000.

 

time123

admin at http://invetrics.com

Tue, 08/09/2011 - 00:35 | 1541294 Count Laszlo
Count Laszlo's picture

This is wrong. There will be a world economic collapse of epic proportions. Smart money is already, and has been, in effect for valid reasons. Anyone to think world governments will figure this mess out are illusioned. It's reboot time kiddies. Plain and simple mathematics.

Tue, 08/09/2011 - 00:37 | 1541299 Hugh G Rection
Hugh G Rection's picture

In times like these, I don't trust anything paper. Sorry mister, za mine has been nationalized, you have zero equity serf.

 

Guns Gold Silver...and a lot of ammo

Tue, 08/09/2011 - 00:38 | 1541305 Segestan
Segestan's picture

Buy before the ' experts' tell you too. They , the expert, will have already entered while gaining from you're waiting. This guy is a tool. Miners have been used, manipulated  just like silver.

Tue, 08/09/2011 - 00:40 | 1541319 Spitzer
Spitzer's picture

Giveaway PE's for fuck sakes

Dividends that pay more then fucking bonds

They held up all day today.

 

Tue, 08/09/2011 - 00:46 | 1541338 Ponzi Unit
Ponzi Unit's picture

Yes, out of all equities and commodities last week, holding only that small portion consisting of dividend payers, using a 5% filter.

Tue, 08/09/2011 - 01:27 | 1541439 rosiescenario
rosiescenario's picture

.....my largest investment, a silver miner closed the day dead flat....not too bad today.

 

Wait until the buyouts start in the PM miners....that is coming next.

 

Personally I do not think using technicals is a good way to invest in mining stocks. I look at reserves and the operating costs (margins). You also need to pay attention to where the mine is located, obviously.

 

Most of the reported analysis on the miners just shows the analysts are really behind the curve on the earnings that are going to be reported soon.

 

 

Tue, 08/09/2011 - 00:42 | 1541326 baby_BLYTHE
baby_BLYTHE's picture

Just buy physical gold bullion. Equities are totally manipulated. Don't play into the Hedge Fund hyenas' trap.

Sitting out the BS fraud/manipulation in the markets and simply holding physical gold bullion has been the absolute winning strategy since March 2009.

Thanks to Jim Rogers, Marc Faber, Peter Schiff, Tyler Durden and others for informing us novices of this winning strategy.  

Tue, 08/09/2011 - 00:43 | 1541330 HungrySeagull
HungrySeagull's picture

Gold is already hitting 2000 for spot plus and asks exceed 2500 tonight.

Tue, 08/09/2011 - 00:46 | 1541337 baby_BLYTHE
baby_BLYTHE's picture

damn fucking right it is

Tue, 08/09/2011 - 00:50 | 1541349 Ponzi Unit
Ponzi Unit's picture

?  12:48 EDT  or do I miss the sarc...

Metal Bid Ask     Gold $1,757.40 $1,759.40 $44.20 Silver $38.85 $38.95 ($0.55)
Tue, 08/09/2011 - 00:55 | 1541359 baby_BLYTHE
baby_BLYTHE's picture

ya, he is just playing. A bit early by a week or two. 

Tue, 08/09/2011 - 03:21 | 1541566 Spitzer
Spitzer's picture

Medusa Mining trading in Australia  MML  +2.34%

Tue, 08/09/2011 - 08:00 | 1541871 disabledvet
disabledvet's picture

awwwww. you have a shine on!

Tue, 08/09/2011 - 00:43 | 1541328 Ponzi Unit
Ponzi Unit's picture

"This is one of those times you really have to think big picture."

 

If Jim Sinclair is right in saying gold $1764 is a launch point, then the picture is going to get very big.


Tue, 08/09/2011 - 00:44 | 1541333 The Grifter
The Grifter's picture

Good read.  It might only take $5 to dig something out of the ground, but you'll never see the profits even if true.   Mining stocks = lose money, in good times and bad (like now), nothing worse than a gold miner selling you shares.   If it was so profitable they'd be stacking the metal themselves and telling you to kiss off.    Gold BTW appears to be heading for the same parabolic blowoff silver saw at the start of May - but it has to correct - this is TOO EASY.

Tue, 08/09/2011 - 01:02 | 1541383 Reese Bobby
Reese Bobby's picture

Way to make stuff up.  Stocks like GG & ABX have made the move in physical gold look insignificant over time.  Facts matter...

Tue, 08/09/2011 - 01:20 | 1541431 The Grifter
The Grifter's picture

OH REALLY.   What time frame do you speak of?

Wish I could post some charts here, but to say that ABX has outperformed GLD back to 2005 (using any chart you can dream up) would be an outright lie, the underlying has outperformed it by at least 2X.   Go peddle your miner shares elsewhere.

Tue, 08/09/2011 - 19:05 | 1544481 Reese Bobby
Reese Bobby's picture

Yes, really.  ABX was founded in 1983 and went public on the TSE in May 1983.  But its first full month on the NYSE was 2/87.  So try graphing that Sparky.

 

You conveniently ignored GG but pick any meaningful period for that one Skippy.

 

You stand corrected and can probably can sleep better now...

Tue, 08/09/2011 - 01:11 | 1541404 Spitzer
Spitzer's picture

All time high in gold miner negative sentiment.

We all know to buy physical here but what is the next best thing ? I would rather own gold mining stocks then physical silver.

Tue, 08/09/2011 - 01:28 | 1541441 The Grifter
The Grifter's picture

If I wanted to mine gold, I'd pan for it myself rather than buy a miner stock.  

Tue, 08/09/2011 - 19:07 | 1544487 Reese Bobby
Reese Bobby's picture

Please do head to the wilderness and pan for gold.  Ask somebody with a brain how it is done.  Finding work ethic will be your own personal challenge...

Tue, 08/09/2011 - 01:33 | 1541452 Schwetty Shorts
Schwetty Shorts's picture

Best to own it all. The fact the miners have held up this well through a collapse of this scale is reassuring... especially with whiffs of $2K gold right around the corner.  I don't see holding shares as being much of a gamble in this environment but we shall see.

Tue, 08/09/2011 - 01:42 | 1541469 Spitzer
Spitzer's picture

The only gamble is the stupidity of the rest of the world. If other investors don't close some of the value arbitrage gap by buying in, then they could fall. But that doesn't change the facts. The value is there even if it is not realized.

 

Tue, 08/09/2011 - 01:34 | 1541454 rosiescenario
rosiescenario's picture

I have been investing in mining stocks for 40 years and you are wrong. Bought DeBeers at $2.50 and was receiving $1 per year in dividends before it ewas bought out by Anglo....similar for East Rand Gold and Uranium and Rustenberg Platinum.

 

If you do not want to do any work on an investment, then just buy what the miners will sell to you...every ounce of silver you buy from Hecla goes to their bottom line as their cost is actually negative for silevr due to the associated metals.

 

 

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