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

Tyler Durden's picture

Submitted by Chris Martenson

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

With the astonishing recent price rise in gold, many investors are asking themselves: is now the time to move capital into mining stocks?

Frank Barbera, respected precious metal mining stock expert and editor of the Gold Stock Technician newsletter, has a viewpoint that will likely surprise many. While extremely bullish in the longer term, Frank sees too many risks in the near term and advises smart money to wait.

He cautions:

"I’ve been watching the mining stocks since 1983 so a fair amount of time that I spent watching the group. I have a wide variety of unique technical indicators on the sector and as I started to see the stock market topping out over the last two to three weeks I wrote my readers a note to say the mining stocks are also very overbought. Mid July we saw one of the second most overbought readings on the XAU, on the arms index in five years. And that kind of reading is a big warning and so I’m not surprised to see them going down. The last letter I put out I told subscribers that I thought the mining stocks could get cut in half in here and I’m going to stick with that. I think we’re looking at a 30 to 50 percent decline over the next six months. The XAU, which recently peaked out at around 220, I think you could see that close to 110 before this decline is complete.

So, now, why is that? Really, the truth seems to be that a lot of these assets have been very, very highly correlated and that mining stocks are a "risk on" asset. Now there are a lot of very competent analysts out there that have been strongly recommending them, pointing to the idea that the stocks are, quote, "cheap". 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.

On the other hand the equity market looks like it could be heading for a very substantial decline and I think that mining stocks – they have not shown the ability, at least not yet, to decouple from the equity market. Now, clearly nothing is cast in stone and I sort of evaluate this day to day but, you know, if you look at the past data it really suggests that they’re going to get hit if the market goes down.

And, at some point I think what you’ll see is I’m looking for a bear market in equities over a period of a couple of months. I think during that period of time you will see gold go through the roof, the physical metal. I also think you’ll see some nice upward progress in silver. I’m in the camp where I think silver is going to act like a monetary metal. Sure they may pull back here in the short term but I think there’s a real opportunity there for silver to turn the corner especially if we get another Jackson Hole special come the end of August with Dr. Bernanke and more QE. I think silver will light up like a firecracker. But, the mining stocks, they need to simply fall to a bigger discount to the underlying metal. And, at some point then if we end up getting into a really strong dollar movement of the downside I think that’s when you might down the line a bit you see the mining stocks turn.

Now I also want to make another point that’s very important. I think that ultimately this shakeout in the mining stocks, we don’t have to put numbers on it but let’s call it a substantial decline. Once that decline is over I think they will reach a low probably into the first quarter of next year in 2012 and from that point I think you’ll see a multiyear bold market in the mining stocks where they play catch up to where they should be and then to where metal prices will be. So I think that it’s going to be very volatile and right now they’re decoupling and that decoupling may stretch out dramatically but then they’ll eventually catch up. So I still see an enormous opportunity there but I think that mining stock investors may have to wait awhile to capitalize on that opportunity."

Also in this interview:

  • How the technical charts for the dollar are signalling increasing risk of a dramatic downside breakdown in the second half of 2011
  • The growing risk of the European crisis to further roil the currency markets
  • Multi-currency strategies for the individual investor

Click here to listen to Chris' interview with Frank Barbera (runtime 40m:45s):

Report a Problem Playing the Podcast


Or start reading the transcript below:

Chris Martenson: Welcome to another podcast. I am, of course, Chris Martenson and today we are talking with Frank Barbera one of the top experts on precious metal mining companies and editor of the very well respected Gold Stock Technician newsletter. In his analysis for investors, Frank overlays a macro outlook on top of a highly rigorous technical analysis and employs a market-timing approach to reduce the inherent volatility within this very high beta sector. So for many years now, Frank has also managed private equity capital most notably for the Caruso Fund with particular focus on precious metals, energy, currencies, all things of, I know, intense interest to our listeners here. Frank, we’re delighted to have you here. With all the recent action in gold, we have a lot to talk about.

Frank Barbera: You bet Chris. Thank you for having me.

Chris Martenson: Oh, my pleasure. Now, you know, gold’s up a 180 dollars an ounce since early July. What do you see as some of the key drivers behind this? You know, how much momentum does this run up have in your estimation?

Frank Barbera: Well, strangely enough, you know, I know there are a lot of people out there who are saying that gold could be a bubble and that maybe it’s going to come down sharply. Right now, I would strongly disagree with that. I think when you take a survey of what’s going on in the world and you look at Europe. Europe is in the midst of a major banking crisis, a banking crisis that could have widespread contagion from not only Europe but back to the United States through the credit default markets. And the U.S. also has, as we’ve seen now, major debt problems and a very difficult situation in terms of an economy that seems to be relapsing back into recession and that, once again, is putting massive pressure on the Federal Reserve to try and do something to ameliorate what looks like is shaping up to be another hard landing. You look at all of these factors and what it adds up to is gigantic uncertainty. And it is that uncertainty which is under painting the move higher in precious metals. Another important point which your listeners should really take into consideration is the fact that this is a climate where because global growth is slowing, short term interest rates especially here in the United States are really locked at zero.

Now, depending on what metric of consumer prices you want to look at – let’s say we take this fairly horrible CPI that’s constructed at 2% inflation. Right now you have negative real rates in the United States. And if you go back over a historic period of time and you look at negative real rates and the price returns on gold, gold does very, very well as long as short term rates are in negative territory. Now when short term rates are normalized and they move above the rate of inflation that at that point can become a problem for gold. I don’t see any way that that’s going to happen for the longest period of time especially when you start to look at some of the recent economic data that’s coming out of the States. We see very weak employment. We see GDP backward revisions as far as 2003; they went back just recently to downwardly revise the GDP data, the recent quarter coming in at about 0.38 with final demand at around 0.08. So you have a comatose growth situation here in the United States. No growth, chronically high structural employment - that is a situation where it’s impossible to see how short term interest rates are going to start to move up. So I think negative real rates are here to stay and gold will continue to surge.

Right now, Chris, the other thing that’s really amazing about all this is like you said, we’ve had this strong move up in precious metals prices, in gold prices. But remarkably, from a technical point of view we really have not seen any kind of bullish enthusiasm. It’s slowly starting to creep into the market over the last day or two but I look at dollar-weighted call-to-put options data each day and that tells me a lot about how much money is flowing into calls and how much money is flowing into puts. And, right now, even though we’ve gone to $1660 on the gold price we have not seen those call-to-put ratios move up to readings near two and a half or three to one, which would typically tell us we’re getting into a frothy market. They’ve been hovering around 160, 170, and that tells me that there’s still plenty of room to go. Also, on a momentum basis, if you look at moving average convergence, divergence, which is called MACD or RSI. We’re seeing strong momentum confirmation by the move up in the precious metals - outstanding relative strength. To me this tells me that gold could easily surge in coming weeks towards the 1800 level and I have really very little doubt in my mind that we’ll see 2000 over the next two to three months. So I think the price is going sharply higher from here.

Chris Martenson: So against that though we see that the USD is up about a full tick today, up almost 1.4% at 75. It looks like a decent pop for the day but it seems almost maybe stuck in a range. How are you looking at the dollar now which is the anti-gold?

Frank Barbera: Well, that’s a good point and I’m glad you brought that up. The one caveat I would have with gold in the short term is that you could see a very short-lived pull back. So this is not something that I think investors should really be terribly worried about but I could see something, for example, like the GLD pulling back towards maybe the 155 to 160. We’re at 160 right now but about the 155 to 156 area. So you could have a couple more days of strength in the dollar and you might get a few more days of short-term weakness in the gold price but I think within a couple of days were going to make another low in the gold market and then from there the price will turn higher and begin another large trending move to the upside. So in the very short term I do think we’re going to see a little bit more dollar strength. The dollar index is at about 75.02 as we speak here on a Thursday morning up about a buck. I think you could see a push up towards about 77.5 maybe 78 over the next four to five days.

And, now there’s one other little caveat. The dollar is showing a very, very weak pattern. When we talk about poor quality rallies this is really the textbook definition of a poor quality rally. So I’m not really that sure that we’ll even make a move to 77 but I’m allowing for the possibility that it could do that over maybe the next week or so. That could correlate to some kind of a short-term period of weakness in the gold price and at that point then I think we’ll probably start to see signs of a reversal back to the downsize in the dollar and a reversal back to the upside in gold. So, you know, one of the things I would really recommend to listeners is to not worry too much about short term moves. This is one of those times you really have to think big picture. If you’re very concerned about getting the best price, break up the capital that you have into smaller increments and dollar cost your way into the market in stage tranches because trying to put too fine a point on any of these markets right now is not the greatest idea. But, for what it’s worth I do think we’ll see a little more bounce in the dollar and short term pullback in gold and then I think gold will reverse higher. 

Click here to read the rest of the transcript.


Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.

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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"

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

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.

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%

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...

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.

Michael's picture

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

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?

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!



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

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...

rosiescenario's picture was an acid test, so to speak...

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.

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.

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.

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.

Spitzer's picture

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


New World Chaos's picture

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

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?


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. 

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

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'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 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.

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.

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.

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.



admin at

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.

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

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.

Spitzer's picture

Giveaway PE's for fuck sakes

Dividends that pay more then fucking bonds

They held up all day today.


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.

rosiescenario's picture 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.



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.  

HungrySeagull's picture

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

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)
baby_BLYTHE's picture

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

Spitzer's picture

Medusa Mining trading in Australia  MML  +2.34%

disabledvet's picture

awwwww. you have a shine on!

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.

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.

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...

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.

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...

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.

The Grifter's picture

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

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...

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.

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.


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.