Sprott Shifts From Gold Bullion To Gold Stocks, Explains Why

Tyler Durden's picture

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SGS's picture

"let alone in an industry that literally mines the world’s reserve currency out of the ground."


aahhh yes, Sprott and Embry are so dead on with words...love it.

markmotive's picture

One look at the GDX to bullion ratio and you can see that gold stocks have lagged in a major way. But I wouldn't throw in the towel on bullion - gold miners need funding and get killed when credit markets seize up.


spiral_eyes's picture

only gold is money.

gold stocks are not money.

if you're looking for potentially large fiat-denominated gains (and also potentially large losses) look to the stocks.

if you want hard money look to the physical.


jekyll island's picture

Agreed Spiral, no one is suggesting that gold stocks are money, they are not.  They have traded at a historical 30% upside to gold price and as such are a good vehicle for speculating on gold market.  I personally feel that this is a good place to look for return after you have established a base in physical.  Mining stocks are risky and should perform well, why would you want to be in this market for a 10% return?  The key is to take profits when they are there and convert it into physical or use it to buy other mining stocks.  Risky, yes, rewarding, absolutely.  Recommend to everyone?  Absolutely not.  

spiral_eyes's picture

I myself am sitting on a few junior miners. (Kaminak, bitchez)

But nobody should ever sell an ounce of physical to get into them.

FreedomGuy's picture

They are also much quicker and easier to buy and sell than physical. The physical has the insurance aspect but the stocks are a better investment vehicle. Gold prices could freeze where they are and mining stocks still skyrocket based on margins.

Freddie's picture

The Bernank and the Dem's muslim are destroying fiat.

fasTTcar's picture

If you do not hold it, you do not own it.

My shiny bars would never do this to me:





Strider52's picture

IF I had any money in Sprott, I would liquidate it and buy physical right now.

Snidley Whipsnae's picture

Are the mining shares going up because they are a good spec investment or because of the intense PR campaign that has been waged in the recent past?

Sounds like a pump and dump coming. A gold mine is still a liar standing next to a hole in the ground.

If you don't have physical you don't have the best form of money.

GoinFawr's picture

`Intense`? `Recent`? How so? Usual suspects saying the usual things as far as the eye can see, as far as I can tell; and been making fiatscos all the while too, I might add...

 "A gold mine is still a liar standing next to a hole in the ground."

Remind me again, in what century was that sentiment expressed? `Cuz today it ain`t that hard to figure out whether or not a mine is actually producing or not, `cous`. SC was an excellent chronicler of his time,  and much of his wisdom still rings true to this day, no doubt, but it's obvious that he was never very skilled at speculatin`, ol`hoss.

"If you don't have physical you don't have the best form of money."

Yeeeaaah, I don`t see you getting much of an argument from many on ZH about that, but where I see a big disconnect here is in the acquisition of said real money... I mean, do you actually get paid in bullion? Or do you run a creekside panning operation in Africa? Because if you don`t you`re getting fiatscos first like the rest of us and then converting them into real money.

 Now I can think of a number of ways of building ounces;this article just goes over one of them, and you`ve been up and down this thread ripping on it.

So what exactly is your agenda SW?

PS Not to rub salt in an open wound or anything, but have you had a look at today`s tape? It makes this post look positively prescient.

reader2010's picture

My strategy has been buying gold bullion by taking profits from selling gold stocks. You're saying fuck me? I say you're a whore of paper.

jekyll island's picture

Gump, you're a fucking genius!!!  I've done the same with silver.  Bought 1000 ounces with paper profits realized by selling half of my positions when they doubled.  That is a sweet trade,  get bullion and keep exposure to company upside.  You probably shouldn't tell people about this, they may realize that this is a good idea.  



LongBalls's picture

I have been doing the same thing. 1/2 my stash has been realized due to paper gains. I was lucky enough to sell at $48 silver and convert into gold. Just don't get to greedy. You will still need to get your hands on the phyz. Keep an eye on the margin's for the phyz. I presume they will start to grow at the dealers. Plan accordingly and prepare to loose some fiat in the machine when the SHTF.

reader2010's picture

The open secret is that you're STILL able to buy physical using paper. To my little pea-sized brain, that's a wonderful bargain while gold is still as cheap as dirt. 

jekyll island's picture

Long Balls, you have big cajones to sell silver at $48.  Excellent call, very well done. 

LongBalls's picture

I would never claim to be that smart dude. I was lucky enough to catch the CME margin hike article on this site Friday afternoon. My local coin dealer is open on Saturday's. So I made the trip first thing in the a.m. I knew is was coming down hard since it's such a small market and the rise was parabolic. I owe my realized profits in silver and since gold to ZH. Ever since that moment I come here daily.

clymer's picture

seems to be what a lot of folks on this blog do:




I don't have the savvy or the liquidity to trade - but I do put a set amount into physical, religiously and monthly (have been since 07 - initially Gold, and now silver)

FEDbuster's picture

Marc Faber calls the monthly buying physical strategy "becoming your own central bank".  Lately I have been buying "the other precious metals, brass and lead".

jekyll island's picture

I think you are ahead of 90% of most people in that you understand the risk, the limitations you have on capital and the amount of time needed to stay on top of speculative positions.  Bravo to you to be diligent in building a physical position, it will serve you well in the coming storm.  

X.inf.capt's picture

there maybe some logic to this, reader





ft. knox



SGS's picture

He is NOT saying to sell your phyzz.  He saying sell GLD lol, and buy miners lol, fuck the morgue!

Motley Fool's picture

My condolences in advance to Sprott.

Motley Fool's picture

Junk me all you like. :)

You really think governments will allow companies that dig money outta the ground the profits ( after it has become recognized as money)?


Yeah. right.


ps. I really shouldn't use the term money. Gold isn't money it's wealth.

Hephasteus's picture

Sprott is simply interested in positioning himself as the new bank when comex explodes. He's trying to be london gold pool part III.

jimmyjames's picture

ps. I really shouldn't use the term money. Gold isn't money it's wealth


I didn't junk you but I also never marked you up-

Gold is money-it is a currency the senior currency and that's all it's ever been-



Shell Game's picture

Agree, MF, the government cannot realistically confiscate citizen gold, but they sure as hell can confiscate gold below ground.  It will suck to be a miner/miner investor when that day arrives.

Doña K's picture

Let's not forget that they carry risks of nationalization also and hedging which may not be visible.

jekyll island's picture

Just bought Silvercorp SVM at friggin' 6.08/share this morning due to the coordinated short attack they are experiencing.  What a gift!  They will be producing 10mOz of silver in the next 1-2 years.  Their closest comparison is First Majestic, trading at $20/share.  This stock is going to double or triple when miners catch up to bullion.  

Buckaroo Banzai's picture

SVM's mines are in China. Have you thought that all the way through?

jekyll island's picture

Yes, China not nearly as risky as Peru, Bolivia or Venezuela, I must say.  Can't have all your eggs in one basket, Silvercorp is just part of the portfolio.  None of the mining stocks are buy and hold forever, you have got to take profits or you will get burned.  

A.W.E.S.O.M.-O 4000's picture

I dunno. The Chines strike me as fairly honest and transparent operators, no?


I mean it's not like they would lie or anything.

jekyll island's picture

Like I stated earlier, it's a calculated risk.  By the way, SilverCorp is a Canadian mining company, they are not nationalized.  Don't think I would touch a Chinese mining company.  China doesn't have the technology or the expertise to explore and develop new projects.  They need the junior miners like SilverCorp to come in and do it for them.  Costs are much lower in China, SVM built their mine for less than $15 million, 3-4 times less than it costs in the West.   Fortuna Silver just built a mine in Mexico for $50 million.  Mining stocks have been described as burning matches, if you hold on to them to long, well you can figure it out.  

drivenZ's picture

who cares where the company is located...If the mine is in China then your SOL if they decide they want it. Same as everywhere else of course but China is, well, China. 

DosZap's picture

Buckaroo Banzai .

Yep, and last report was they were not ALLOWING in Gold or Silver exports.

Have a bud tried to get me into it, and almost did.He made reall good % for  a while, then he lost 90% of his profits overnight.

Buying any kind of commod shares in any Chinese controlled country, is akin to suicide.

bigkahuna's picture

I too have been buying SVM in quantity. At least "quantity" for me -- lol!

jekyll island's picture

It's a calculated risk, but at this price it is easy to see a 100-200% return.  Selling at $15-$18 would be tremendous and reachable IMO.  Good luck to you.  

bigkahuna's picture

I agree, when it crosses the $15 mark, half of my new position is going into something like the dreaded COP or XOM.


- and likewise, good luck! 


Oh yeah...





Whalley World's picture

Sold all of ours at $8.40 and am staying away.  Looks like it could be another TRE. 

alien-IQ's picture

while I tend to agree with this post in theory...the reality is a different story all together.

this analysis is good. the problem is that analysis and fundamentals and facts simply do not matter any longer. all stocks move as one now a days. I'm not saying this is a good thing...I'm just saying it is what it is.

perhaps it's worth keeping an eye on some gold stocks...but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer.

SIOP's picture

alien-IQ, Wrote: "..but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer...."

I couldnt agree with you more. +100

GoinFawr's picture

"...all stocks move as one now a days. I'm not saying this is a good thing...I'm just saying it is what it is."

Erm, I'm not endorsing any strategy one way or the other, but I think you may have overlooked the following paragraph:

"Something has changed recently, however. A new divergence has arisen in the precious metals equity market – a subtle, but plainly evident shift in recent daily performance. On Wednesday, August 10th, for example, the Dow dropped 4% while gold stocks rallied 3%, for a delta of 7% on the day. That is significant outperformance, and not what we have come to expect on an equity market down day. Gold stocks, as represented by the HUI Index, also seem to be breaking away from their traditional correlation with the spot gold price. On August 29th, spot gold dropped 2.16%, while the stocks fell by only 0.81%. On September 7th, gold fell by 3.09%, while gold stocks rose by 0.33%. These small differences indicate a new trend forming. While gold’s daily volatility is expected to continue, we may be entering a new phase where the stocks react less harshly on gold down days, and outperform gold on days of strength."

You say 'anomaly', Mr.Sprott says 'tell'.

Anyway, I expect Kidd Dynamite will be on this thread any minute now 'expertly debunking' the whole article, promoting the verity of SLV and GLD physical holdings, and pointing out how unwarranted in his mind PSLV's premium is. While you have his attention I suggest you repeatedly ask him how his whole 'short PSLV/long SLV' play is working out...

Disclosure: None of the above Funds has ever been on my books. (No reason)

cynicalskeptic's picture

I've noticed this divergence as well.   When gold and silver are getting slammed, you don't see the same level of drop in the miners and at times actuially see up moves.  I suspect you're seeing a divergence in markets.  The paper metals markets no longer reflect the physical market - the manipulation is clear and transparent - predictable drops before COMEX monthly close, drops before bad economic news.  Gold gpoing DOWN after the CHF uis linked to hte Euro?!?!?!    That mekse NO sense - unless you view it as a deliberate effort to make gold look bad - tho head off any 'flight to safety' (to the one last refuge) after the Swiss killed thier currency.

There is (IMO - and that of many others) a concereted effort to portray gold and silver as irrelevant and not worthy of 'investment' - this despite central bank buying and a continual upward price trend (or should I say downward paper money trend?).  Gold is predictably slammed in off hours with massive selling after major up days and before major news breaking.  If it looks like manipulation and smells like manipulation..... because no SANE seller is going to dump a huge position under circumstances that guarantee the WORST price.  But as a deliberate effort to drop prices and trigger stops - these raids are very effective.  But the raids are less and less effective lately with bounce backs being quicker.  

You DO see concerted manipulation in mining stocks as well - part of an overall effort to downplay gold - but this does not seem to be as widespread.  You do see large volumes at end of day on GDX, SLW and others to drop the price at close - seems like some don;t want any upward trend line looking too regular.  Premiums on physical have been going up - with momentary panic in physical markets duriong the recent silver and gold run ups.  AS mere coincidence that Gold had one heck of an uptick on a Monday when NY and London were closed AND when the budget crisis was peaking.  'Market intervention' efforts by govt had been suspended - no cash available.  

Individual holders of gold/silver - bullion, ETF's and mining stocks is still miniscule compared to years past when gold stocks were a small but consistent part of any holdings.  Despite all the 'BUY GOLD' ads on radio and TV pandering to the inexperienced and fearful (with way too high premiums) the masses are still more likely to be selling.

I suspect that smart money is moving into miners - indeed it seems like the Chinese and others are doing all they can to convert paper holdings into TANGIBLE assets.  China is trading paper $US for African farmland, long term energy contracts all over the world and Australian and South American mining companies.  If those miners produce gold and silver - all the better.  Anyone notice the CDE deal where China is buying gold ore concentrate from China? 

The disparity in price between physical and the miners has caught the attention of a number of analysts lately - this has been getting more and more coverage.  Common sense would say ther HAS to be a breakout at some point given the continual upward trend in these metals.

KidDynamite's picture

I have the same trade on as Sprott - it's been disclosed in all of my blog posts about the subject. He sold PHYS to buy miners - I bought GDX and shorted GLD. 

Also disclosed was that I took off my short PSLV vs long SLV trade in relatively short order, as the borrow costs were too high.  However, if you're long PSLV, you will absolutely outperform over the next year by switching to SLV and saving yourself the 20% premium - bet on it.  Quote me.  Of course, shorting PSLV and buying SLV (which is a very expensive trade to carry) is not the same trade as selling your PSLV to buy SLV (which, yes, is a slam dunk trade)... I can explain it to you more if you really want to learn - leave a comment on any one of my PSLV posts for a free lesson.    ps - Sprott is doing this same trade too! Swapping out of PSLV and into bullion at spot (minus the 20% premium)


pps - almost forgot: I'm long OCT GLD calls too

Snidley Whipsnae's picture

Goin... There has been an enormous sales campaign recently aimed at 'buy gold stocks, they are dirt cheap'...

Simply because something is cheap does not mean it's a good value.

The games that small companies can legally play with stocks would make your hair stand up...especially if YOUR money is invested in them.

Get in the water with these sharks and you will get eaten alive... Sprott isn't a multi billionaire because he spends his time helping the small investor. 

GoinFawr's picture

"Simply because something is cheap does not mean it's a good value."

Once again, I'm not advocating anything one way or the other. But,

You're taking the word 'cheap' completely out of context. Sprott is not comparing a shovel sold at Malwart to one you'd get at Lee Valley and saying the Malwart spade is the better deal solely because it cost less, he's suggesting that if you're smart you might be able to pick up a high quality Lee Valley shovel at a Malwart price. Big difference there.

"The games that small companies can legally play with stocks would make your hair stand up...especially if YOUR money is invested in them."

Right. Due diligence, do the due dude; I doubt as many posting here were 'born yesterday' as you seem to think. Oh and 'small' could be 'med', 'large' or even 'ginormous' in that sentence. Indeud, if you've been following the PM mining sector over just the last few years you should have noticed that `bigger isn`t necessarily better`.

 "Sprott isn't a multi billionaire because he spends his time helping the small investor."

Bollocks!  Are you seriously trying to tell me that anyone, even the small, who invested in PM`s or their proxies over the past decade hasn't benefited from Sprott's actions and advice? How much physical metal has he taken off the market in the last ten years? I`m not saying he`s been acting out of a sense of altruism, but it`s not like his success has been based on making bad calls that hurt small investors either.

Is this a 'sour grapes' thing? I mean it's hardly Mr.Sprott`s fault if you haven't tagged along for the ride of your life.

caerus's picture

imo this is the problem with relying solely on "fundamentals" it is too difficult (for me at least) to identify/quantify the relevant facts and establish causality between these facts and share price...this is why i find it more useful to be aware of the fundamental backdrop, including the state of the broader equity market, and observe the price action (in the miners in this case)

i do not want to own equities in the current environment but it's hard to ignore the action of NEM for example, bumping up against what i consider key levels despite the terrible tape...for example, 9/2,9/8,9/9 NEM performed relatively well in some really bad ES action

haven't bought anything yet but still watching

Snidley Whipsnae's picture

caerus... Start up gold miners are tiny. Their stock prices can be moved easily by the wealthy investors.

IOWs the small mining company can have their 'tape painted' easily. Once a bunch of fools are lured in the big operators that got huge stock options to fund the start up can dump their stock and the price plunges.

Better think a long time on this one...

TheFourthStooge-ing's picture

this analysis is good. the problem is that analysis and fundamentals and facts simply do not matter any longer.

Bingo! The analysis is good, yet the game has changed. The casino has made the use of marked cards, loaded dice, crooked roulette wheels, and rigged slot machines a standard practice rather than a hushed exception. It's openly flaunted because the sheriff and his boys are bought and paid for with their cut of the take.

There are occasional winners in order to keep the tables full of suckers. Naturally the payouts consist of the casino's chips; this is fine as long as there are people willing to accept the chips for tangible goods and services.

perhaps it's worth keeping an eye on some gold stocks...but investing on "fundamentals" in this market is a dangerous thing because fundamentals require facts and as we all know...the facts simply do not matter any longer.

I could see it making sense as a short- to medium-term investment strategy for the purpose of making some quick fiat clownbux to retire a debt. The investment would need to be limited to maximum acceptable total loss, as profit could only be realized by bailing out well enough in advance of the system falling apart.