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Morgan Stanley Releases The Definitive Gold Stocks Report

Tyler Durden's picture


Everything you always wanted to know about the future of gold stocks and much more is now answered in this 79 page monster of a report just released by Morgan Stanley, which finally joins the crowd and goes megabullish on gold stocks, by estimating that "currently c.$1500/oz of value is accounted for in reserves in the ground – so, at a $1800-1900/oz gold price, this leaves $400-500/oz for stakeholders, of which shareholders come last (after debt servicing and tax/royalties). While this is a blunt tool, we do believe it provides a good illustration how the sector has historically discounted the spot gold price, but currently does not seem to believe that the current $1800/oz gold price will hold. Thus, we believe an opportunity exists to invest in reserves in the ground rather than bullion (ETF)." So for those who do not wish to chase bullion at record prices (although with currency collapse increasingly imminent, that is probably not a lot), here is MS' conclusion: "Broadly, on stock performance we would make the case for:  i) primarily, operating delivery; hence, which stocks look to offer value in their reserves through volume growth and cost reduction. ii) secondly, in the extremes of gold price movement, operating gearing can, but generally does not, supersede operating delivery; theoretically, higher operating gearing generally implies lower quality assets associated with difficult cost/volume control, hence our caution in looking at operating gearing in isolation from operating delivery and track record. iii) thirdly, valuation (but need to adjust for regional risk factors, by-product discount to rating, track-record and risk of delivery). Apparent valuation anomalies can rapidly be erased by big movements in the gold price or failure to deliver to operational expectations. Stocks screening favourably  on a balanced gold price outcome (and rated OW by Morgan Stanley analysts) include ABG, ABX, BVN, PMTL. While several of the growth stocks (RRS, KGC, GG) screen less well, delivery on the operating expectations would likely be positive stock drivers." Of course, as much as we like gold and its derivatives, Morgan Stanley's outright push is nothing short of an attempt to get investors to move away from physical into a stock certificate deliverable (and hence, "confiscatable") which is ultimately in the hands of the DTC: something, which, with the world on the edge of complete insolvency, we would hardly advocate.

Report summary:

With gold at record highs, our detailed analysis of the performance drivers of 50 gold stocks (67% of global gold production) indicates operational delivery (reserve growth and cash cost) prevails over valuation. While we are positive on gold and prefer equities on operating gearing and valuation, operational delivery is key. Preferred stocks: ABX, ABG, NCM, PMTLq, 1051.HK.


Prefer gold equities to bullion at spot: Global gold equities underperformed gold by 30% as gold rallied 46% y/y. We (1) estimate the equities discount c.$1500/oz; (2) retain a positive gold price outlook; and (3) now prefer gold equities to bullion at spot, with the added kicker of operating gearing. The proviso is delivery – but, following a decade of rising costs/capex and volume under delivery, the investment reflected in cost stability and volume growth should start to bear fruit. We select our preferred stocks based on converting reserve growth/investment into volume growth of low cost production, not solely on operating gearing.


Special Feature – Gold Equity Performance Driver Analysis (pages 5-10); what 50 stocks are telling us: We screened 50 gold stocks globally for drivers of stock performance over a 5-year period. While significant stock specific drivers exist, broadly two operational drivers in combination stand out: (1) 5-year reserve growth, and its potential as a leading indicator of production growth, (2) cash cost position and outlook for cash flow. Valuation, while important, does not appear to have been a material driver relative to these operational factors. We view operating gearing as a potential future driver – but it favours the equities in general, relative to bullion, rather than specific high cost producers.


Value or growth? Stocks that screen well and rated OW are ABX, ABG, NCM, PMTL, 1051.HK. Generally, stocks screening well on volume growth (and cost) are not OW rated given their valuation, which our study suggests may not be a material near-term headwind if they deliver operationally. The S. African sector screens fairly poorly on relative operating metrics (cost, growth) – the investment case being operating gearing and valuation (ANG and GFI, both OW rated).

Full report attached:



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Sun, 09/11/2011 - 17:06 | 1657276 Blorf
Blorf's picture

Get ready for fund managers to start piling in, and hedge funds to cover their shorts.

Sun, 09/11/2011 - 17:15 | 1657308 GeneMarchbanks
GeneMarchbanks's picture

Man I hope you're right! My juniors have been STAG-NANT.

Sun, 09/11/2011 - 17:24 | 1657344 gwar5
gwar5's picture

I don't own any miners shares but James Turk and others say the gold miner ETFs indicate ready for a technical break out his week or next. Says languished, but held up and did not go down with the market this last time. No? Since they've lagged they may outperform physical to catch up. Hang in?



Sun, 09/11/2011 - 17:49 | 1657435 GeneMarchbanks
GeneMarchbanks's picture

No doubt, I mean what am I gonna do... trade in for Netflix? Unless this thing takes off ala tech, I'm going to have to cash out and go all physical. Not complaining though.

Sun, 09/11/2011 - 17:59 | 1657477 caerus
caerus's picture

i think they already broke out...good action in bad tape...watching and prob buying next week

(GDX not GDXJ yet)

Sun, 09/11/2011 - 19:38 | 1657871 The Peak Oil Poet
The Peak Oil Poet's picture


it looks to me to be very similar to the fake run up on silver recently - suggesting we will pile in the latecomers before a crash in gold 

this post (and the 2 or 3 that follow it)

makes the run up in gold prices quite easy to understand - whenever there's a very low real interest rate a perecntage of long term investment will shift to Gold

but then the risks are - the rates change or the choke point is reached and all the "cleva" fellas like you lot reap your profits and run laughing at everyone you conned

China is already putting up real interest rates - how long before the current lot start to dump their gold and go for a better return?

i like gold because it's shiny and heavy and easy to move between countries without having to declare it unless it is in large amounts (security policies have made moving larger amounts more difficult)



Sun, 09/11/2011 - 20:19 | 1657991 caerus
caerus's picture

i hope you're drunk

Sun, 09/11/2011 - 20:28 | 1658017 DosZap
DosZap's picture


bu then the risks are - the rates change or the choke point is reached and all the "cleva" fellas like you lot reap your profits and run laughing at everyone you conned

First they( the FED)cannot  raise the rates(our debt on the interest  would MURDER US on Treasuries and Bonds.)

 Secondly,  we are a DEBTOR. @ 100% GDP to Debt ratio,currently.

We are NOT China, they  hold over 3 Trillion in hard cash.Plus no telling how much Gold and Silver,plus they encourage their people to OWN THEM.

Sun, 09/11/2011 - 20:57 | 1658112 The Peak Oil Poet
The Peak Oil Poet's picture


not if you stopped borrowing, stopped spending beyong your means - which you might be forced to do unless you provide a better rate of return


China encourages people to own gold and silver maybe because China does not want them exposed to the effect of interest rate hike - being able to hike rates to effect business but have it not effect the population seems like a good strategy

anyway, it's not my field - i just smell a rat





Sun, 09/11/2011 - 21:36 | 1658192 Hulk
Hulk's picture

"not if you stopped borrowing"  He's more than drunk Caerus...

Sun, 09/11/2011 - 21:41 | 1658217 The Peak Oil Poet
The Peak Oil Poet's picture



i guess that's why Ron Paul could never win - nobody will ever allow someone to crash the system - it has to blow up and take everyone with it first


It would be interesting to know if, prior the the collapse of Rome, the Invading Hoards were holding a lot of Roman debt


no wonder they were so angry and violent eh



Sun, 09/11/2011 - 23:11 | 1658400 caerus
caerus's picture

so where's the poetry?

Mon, 09/12/2011 - 06:24 | 1658811 Tompooz
Tompooz's picture

About this "official encouraging" to own gold..Oft repeated but NOT true.  Because the story was so out-of-character, I went back to the source which was the ENGLISH CCTV news broadcast that highlighted a new company that had started selling silver to the public. The company spokesperson gave some pep talk on owning silver. There were some images of people buying gold in gold-shops.

It was not on any chinese broadcast and nobody from all the people around China that I asked had seen any official encouragement to buy precious metals.


THAT CCTV clip was all. But you find the same clip all over you-tube with headlines that the government is promoting the buying of gold and silver by the citizens. 

Makes you wonder why. 

Sun, 09/11/2011 - 17:56 | 1657465 jekyll island
jekyll island's picture

Amen brother!  Only thing green are my silver producers.  I am ready for some upside momentum.

Sun, 09/11/2011 - 17:57 | 1657468 pitz
pitz's picture

Most of the "juniors" are total shit though, even the producing ones.  San Gold, for instance (SGR.TO).  Had a very good business plan of bringing an existing mine back into service with some upgrades.  They were progressing nicely, when management decided to go out and spend all their money on new exploration at unrelated properties, and land acquisitions.  Many years later, they have still yet to turn a profit because of this, and their stockholders suffered a lot of dilution.

The gold community might hate Barrick for some of its past sins of gold hedging, but at least they produce gold, are profitable, and don't go off on tangents that are outside of their core business. 

Sun, 09/11/2011 - 17:08 | 1657279 X.inf.capt
X.inf.capt's picture


Sun, 09/11/2011 - 17:50 | 1657442 DoChenRollingBearing
DoChenRollingBearing's picture

Why buy vulnerable miners when you can have the real thing?  Miners have so many risks, from liars running them to foreign .govs nationalizing them (or taxing them to skim the profits from $3000 gold), to our own .gov with THEIR proclivities to tax (and spend).  Miners hedging...

Gold stocks?  No!  Not for me.

The answer is physical gold.  Right there in your own possession.  Hide it well.  and maybe some Pb and lead delivery devides to protect it.

Sun, 09/11/2011 - 17:11 | 1657294 xtop23
xtop23's picture

Its a barberous relic of a forgotten age......... a fiscally responsible age that is.

Hey Blythe give us a kiss sweetie 

Sun, 09/11/2011 - 17:52 | 1657452 DoChenRollingBearing
DoChenRollingBearing's picture

Eeww, can she kiss you twice so she doesn't kiss me?

Sun, 09/11/2011 - 18:38 | 1657639 xtop23
xtop23's picture

With her knowledge of CDS she could theoretically kiss you and me both simultaneously, make it look like some other woman did it, and still manage to help starve a million Egyptians through food inflation

Sun, 09/11/2011 - 17:13 | 1657298 MsCreant
MsCreant's picture

No one seems to be worried about nationalization. 

Sun, 09/11/2011 - 17:14 | 1657301 xtop23
xtop23's picture


Sun, 09/11/2011 - 17:19 | 1657319 GeneMarchbanks
GeneMarchbanks's picture

--- I have some physical offshore

--- I have all my physical in one place(same country)




*POLL (in case of mouthbreathers)

Sun, 09/11/2011 - 18:30 | 1657602 Chaffinch
Chaffinch's picture

I would be worried about nationalization of mines if I owned any miners - if FOFOA is right and we experience a huge overnight revaluation of gold like the 70% hike from $20.67 to $35 - or much much bigger, we hope, then nationalization would be an easy way for CBs to build back stocks they have presumably depleted by selling to keep the price down.

Sun, 09/11/2011 - 17:15 | 1657306 George the baby...
George the baby crusher's picture

Now that's a reliable source!  Let's move on.

Sun, 09/11/2011 - 17:17 | 1657316 xtop23
xtop23's picture

 Wouldnt nationalization put the exact people that are trying to stay afloat with their massive shorts out of business at light speed ?

 The price would go stratospheric in minutes I should think.

Sun, 09/11/2011 - 17:20 | 1657329 MsCreant
MsCreant's picture

The price of the shares or the gold?

Sun, 09/11/2011 - 17:22 | 1657335 xtop23
xtop23's picture

The physical market and the paper market would have a virtually immediate and total disconnect. Manipulation FIN ~

Sun, 09/11/2011 - 17:32 | 1657386 xtop23
xtop23's picture

 Blythe junked me booooooo truth hurts doll

Sun, 09/11/2011 - 18:05 | 1657490 gwar5
gwar5's picture

Good call, think it's happening, Xtop.


GATA had an article indicating GLD had decoupled 2% from physical recently. This, despite GLD is trying hard to convince buyers they really have vaults of gold (NOT) by giving MSNBC blinded folded trips to their secret (nonexistent) vault(s), where they made some boo boos. 

They not showed someone elses gold bars per the serial number, not even belonging to GLD, as ZH pointed out, but apparently as another commentator (Mr. Embrey?) pointed out, the video also showed they were using standard pallets stacked six deep, which would not physically support all the weight of gold, if it were real gold..... so it gets curiouser and curiouser.

And Embrey also pointed out, "Why all the cloak and dagger if they were trying to show their operation is benign and legit? They defeated their whole purpose."

Decoupling bitches.






Sun, 09/11/2011 - 17:38 | 1657398 Long-John-Silver
Long-John-Silver's picture

Physical Gold and Silver prices go parabolic. Stock prices go to ZERO. Whenever a government comes in and nationalizes anything, the owners and stock holders are left with nothing.

When the government moves in and takes over management of the mines production will drop 50% in the initial stages. Soon after the Unions walk in and production costs skyrocket and production drops an additional 25% or more. Meanwhile the government will create production numbers out of the thin air because they are the only purchasers of the physical metals coming out of the ground. The counterfeiting of paper Gold and Silver will continue unabated. 

Sun, 09/11/2011 - 18:15 | 1657540 MsCreant
MsCreant's picture

This was my thought too. The price of mining stocks was being conflated with the price of gold itself which is why I was asking that question. Thanks. 

Sun, 09/11/2011 - 18:41 | 1657652 The Deleuzian
The Deleuzian's picture


I just don't understand why you think the US Gov. would outright nationalize mines atleast here in the US, then shareholders get outright robbed (brokerage accounts get wiped out)  Mutual funds get screwed  and so forth of their stake through equity ownership.  As far as I remember, stock is private property if that has any meaning.

Who's to say the US gov. doesn't compensate shareholders for the takeover?

I understand that many here @ ZH believe the banksters can do anything they want!  But where do you stop, does that logically mean that Au/Cu producers are free of this?  What about Ag/Zn/Pb miners? are they next?   => mining equipment makers => fabricators => Coin houses => jewelry retailors => then what CAT then IBM then GOOG.

This would send a very strange/dangerous message throughout the equity complex at large NO!

We can confiscate any and everything we deem fit!

If your answer to that question is of course they can and they will!  Then what is safe to own at all?  Your house/family? Is the American investor than thru financial repression forced to buy BAC, JPM, MS, GS, etc.. in their retirement funds or else?

This isn't Russia and I seriously doubt even the Kremlin would rob the average russian citizens of their equity stake in shit over there like you are suggesting.

Seems to me that the HUI is breaking out and all the shorts who have been set by the Algos through the bear raiders to keep the miners off the radar screen are going to cover.  There maybe something cooking up high with takeovers etc... I don't know, maybe a miner with the help of some funds now own all outstanding shares of that company but computer screens still trade it thru forged shares or the like?  The possibilities are endless at that point No?

IMHO... This could be a huge headfake, I have no doubts that this is a possibility today with all the BS flying around and I could very well be wrong!!!  But I'm not going to get bullyed out of the game through some fear I deem atleast mostly-irrational...


Sun, 09/11/2011 - 19:08 | 1657768 Long-John-Silver
Long-John-Silver's picture

You have a short memory. What happened to GM's bond holders when the government nationalized GM? The first in line became the last losers. You MUST understand these people have spit and shit on the Constitution of the USA. It means nothing. The government can and will come in and do any damn thing it wants to do, and does. Take Gibson Guitars as a perfect example. 

Sun, 09/11/2011 - 19:52 | 1657909 drivenZ
drivenZ's picture

Sorry GM is completely different. Were talking about co's that in this situation would potentially produce the most valuable stuff on earth vs a company/bank that ran itself into the ground. Nationalization won't happen in the US, but I don't rule out some harsh taxes or other cumbersome legislation being introduced. Then again most PM producers aren't US based nor do they operate in the US.

Sun, 09/11/2011 - 20:03 | 1657942 FranSix
FranSix's picture

Bear in mind that the U.S. has exceptionally few large gold prospects.  There are exceptionally few large gold prospects globally.  The big prospects are in Copper.  You want a gold mine, you have to look at the smaller companies.

They ARE talking mine nationalization in South Africa.  It happened in Venezuela.

Sun, 09/11/2011 - 20:36 | 1658047 drivenZ
drivenZ's picture

Agreed, I would certainly be careful to research the country concentrations on any gold miners. Venezuela is nationalizing and there was some chatter about Peru doing something but probably just some additional taxation.

Mon, 09/12/2011 - 06:30 | 1658827 Tompooz
Tompooz's picture

yep.. now waiting for a generous compensation by Mr Chavez :-(


Sun, 09/11/2011 - 20:15 | 1657978 DosZap
DosZap's picture

The Deleuzian.


 Is the American investor than thru financial repression forced to buy BAC, JPM, MS, GS, etc.. in their retirement funds or else?.

Uhummmm,yes, exactly.

Checked out ANY Coprorate mainstream business or FDIC Banks, that allow you to CHOOSE anything BUT?.

W/the exception of FDIC Banks(PM IRA's,more paper ), I have yet in 30 years to see ONE that offers ANY PM, or miners offerings for business portfolios.

Stock, bonds, mutual funds, that's it. (401k's, IRA's,CD's)


And, again, YES!

We can confiscate any and everything we deem fit!

Sun, 09/11/2011 - 23:12 | 1658401 The Deleuzian
The Deleuzian's picture

Ya DZ, LJS and the gang

All of us know that thoughts can be churned much quicker than the typed word can catch..

You are correct and I was specifically off mark with the IRA thingy!!  And I agree that I suppose the banksters could do anything they want, but man, that's going pretty damn far!!!

Still, if laws are passed or options run out and US citizens are required through direct investment out of this/into that... then we are truly screwed.  When brokers/on-line accounts say sorry the government took your shares and 'have a nice day' then atleast for me, that would be the final crotch-kick from those bastards.... 

I can see it now though, stormtroppers marching into NEM's office in Denver and calling them 'financial terrorists'...

what's next!  I woulden't miss any of this for the world.. It's just so damn interesting... That's what the 99% miss... NO!

Sun, 09/11/2011 - 17:20 | 1657328 Soul Train
Soul Train's picture

it's about time.

Sun, 09/11/2011 - 17:26 | 1657356 paulypaul
paulypaul's picture

The tops in boys, or not....

I dont know anymore, just a bullion Knob I guess.

Sun, 09/11/2011 - 17:28 | 1657365 Yardfarmer
Yardfarmer's picture

obviously a great deal of suspicion due to inherent risk quite naturally accrues to any "investment" especially an economic climate that grows increasingly and exponentially volatile. chances are that the funds and the commercials will always assure that you will get scalped. junior miners are the only obvious alternative to knocking about with the large interests and even they are subject to arbitrary taxation, nationalization, and ultimately confiscation. unless you are a big player with lots of bank stick to the physical. it buys a lot of peace of mind as well. it's more than apparent that this criminal banking cartel has 1001 ways to separate you from your wealth. play it safe and have nothing to do with them.

Sun, 09/11/2011 - 17:32 | 1657383 Motorhead
Motorhead's picture

You mean Morgan Stanley actually put a disclaimer in this report?  You mean it's not a "shitty deal"?  Cool, I believe them!

Sun, 09/11/2011 - 17:45 | 1657422 caerus
caerus's picture

GDX broke above 64 GDX

NEM broke 63ish NEM

ABX broke 55 ABX

etc....this was done in bad tape...if support holds i'm buying some miners

Sun, 09/11/2011 - 18:03 | 1657491 ljag
ljag's picture




Try GORO. A junior that pays dividends albeit small ones. Impressive rock tho......

Sun, 09/11/2011 - 17:46 | 1657425 gwar5
gwar5's picture

Jim Rickards latest: My Blog


Upshot: FED has manipulated volatility out of Foreign currency exchanges and bonds, so all the volatility will go to stock trading with HFT and uncertainties. Expect wild market swings ahead. Gold will become more volatile along with the stock market as traders liquidate gold to cover their equity positions. But long term trend for gold to $5000 is intact, just beware the speed bumps. 








Sun, 09/11/2011 - 18:10 | 1657495 no2foreclosures
no2foreclosures's picture

Is this the same Morgan Stanley that holds the number one short position on silver?  According to Bob Chapman they are.  So, any definitive this or that shit from MS is pure BS.

Sun, 09/11/2011 - 19:46 | 1657889 stacking12321
stacking12321's picture

perhaps you are thinking of JP morgan, not morgan stanley, on the silver shorts

Sun, 09/11/2011 - 18:10 | 1657515 Flakmeister
Flakmeister's picture

GDXJ is looking coiled, still below 52 wk highs.... 

GDX has just busted through massive resistance....

A number of mid-tier guys as well... eg: IAG, AUY

Sun, 09/11/2011 - 18:48 | 1657684 FranSix
FranSix's picture

Here is a comprehensive list of gold mining juniors and explorers that I compiled over the last few years out of interest.  Thank-you for providing the Morgan Stanley report.  I don't own any of these companies, but they would serve as an excellent resource for researching various small cap and mid cap gold stocks and reading the news that comes out of them.  You'll find very few silver issues, although there might be a platinum or copper or base metals player in the list:





Sun, 09/11/2011 - 20:05 | 1657950 cramers_tears
cramers_tears's picture

MS - my ABX thanks you.

Sun, 09/11/2011 - 22:05 | 1658267 JW n FL
JW n FL's picture



Miners ALWAYS! Suck Ballz!!

Unless you are a Principle in a Mining Operation.. YOU! WILL!! NEVER!!! EVER!!!! realize any rational or logical gain that is in line with the price of paper or physical. PERIOD!

You have the entire history of mankind to search every chart on earth to prove me wrong.

Good Luck!

Sun, 09/11/2011 - 23:49 | 1658471 Al Huxley
Al Huxley's picture

Then you're buying the wrong ones. Because the right ones have been turning over consistent 100 - 500+% gains for the past 8 years at least. Tough game, but incredibly lucrative if you're willing to put some time into it.

Sun, 09/11/2011 - 23:57 | 1658482 caerus
caerus's picture

leave the pups, cats and dogs, and mining stocks alone.

- wd gann

(i don't btw)

Mon, 09/12/2011 - 02:51 | 1658694 Grand Supercycle
Grand Supercycle's picture

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.

Updated SP500 monthly chart at blog.

Mon, 09/12/2011 - 05:11 | 1658777 pitz
pitz's picture

Look at some of the tables; they're predicting gold at $1150/oz in 2016.  The whole report is a hackjob, and half is barely coherent.  If this is what passes for equity "research" these days.....

Mon, 09/12/2011 - 21:55 | 1662197 aminorex
aminorex's picture

If you're going to disable downloading, then don't bother to post it.

Tue, 09/13/2011 - 22:08 | 1666026 moxia19
moxia19's picture

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Wed, 09/14/2011 - 17:51 | 1670523 bigelkhorn
bigelkhorn's picture

This report is very exhauastive and contains each and every thing which a

gold investor must know.. the futures available , The ETF ttraded ,

the demand fluctuation and its effects on price.. A must have for an

investor.. To avoid the risks, I follow they

give an accurate predictions about the market and other happenings

Do NOT follow this link or you will be banned from the site!