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Tim Price And Don Coxe: "We Have Entered The Most Favourable Era For Gold Prices In Our Lifetime”

Tyler Durden's picture




 

Submitted by Tim Price, Director of Investment at PFP Wealth Managmenet, courtesy of Sovereign Man

We Have Entered The Most Favourable Era For Gold Prices In Our Lifetime

Acclaimed screenwriter William Goldman (The Princess Bride, among many others) famously began his autobiography with three telling words: "Nobody Knows Anything."

The same logic would seem to apply to much conventional reporting of the financial markets. Any investor looking for informed analysis of market developments can therefore save themselves a few minutes every day by choosing not to read any of the 'Companies and Markets' section of the FT, which typically constitutes a fantastic piece of fiction.

(If there is a more thankless task in finance than trying to explain why certain markets did what they did yesterday, we don't know what it is... unless it's working in the PR department at Goldman Sachs.)

But as Soc Gen's Dylan Grice has frequently pointed out, human beings are suckers for stories. We seek meaning from just about everything, and financial markets are no exception. Why else would otherwise rational people shell out ~£2.50 every weekday just to read a selection of vapid and contradictory speculations about recent market price action?

At the risk of going out on a limb, here is our own inherently subjective "take" on the current market environment: Investors seem to believe that the euro zone debt metastasis has gone into remission. There is an uneasy calm to both equity and bond markets -- it feels like the calm before the storm.

Both Goldman and Barclays have issued research notes recommending equities over bonds. It is certainly difficult to get excited about G7 government bond markets except from the perspective of shorting them. As Stratton Street recently observed, there are over $10 trillion in marketable US government securities, yet their average yield amounts to less than 1%.

But it might yet be dangerous to adopt Goldman's binary response which is to advocate blanket support for stocks. This is not a black vs. white issue; just because most government bond markets are uglier than sin does not automatically justify going 'all in' on the stock market, even as deposit rates remain painfully thin.

We nurse an ongoing fear that equity markets are being largely supported by the inflationist antics of central banks. This may have led to many investors becoming addicted to the effects of cheap credit, and they may not like it when cheap credit is ultimately withdrawn.

But whatever is driving equity sentiment, there are undoubtedly pockets of value for those with the stamina and patience to embrace them. In Don Coxe's latest and typically excellent letter, "All Clear?", he highlights the opportunity in precious metals mining companies:

"If there were one over-arching theme at the BMO Global Metals & Mining Conference, it was that the gold miners are upset and even embarrassed that their shares have so dramatically underperformed bullion...

"On the one hand, they were delighted in 2011 when it was reported that since Nixon closed the gold window, a bar of bullion had delivered higher investment returns than the S&P 500 for forty years-- with dividends reinvested. But some gold mining CEOs find it an insult that what they mine is more respected than their companies' shares...

"In our view, we have entered the most favourable era for gold prices in our lifetime, and the share prices of the great mining companies will eventually outperform bullion prices."

Gold remains one of the most widely misunderstood assets in the investible world. Indeed, it may be better to refer to it as a means of saving that does not expose the saver to counterparty or credit risk or to the depredations of the monetary authorities.

As Don Coxe makes clear, governments are running deficits "beyond the forecasts of all but the hardiest goldbugs five years ago; central banks are printing money and creating liquidity beyond the forecasts of all but the most paranoid goldbugs a year ago."

The choice for the saver is essentially binary: hold money in ever-depreciating paper, or in a tangible vehicle that has the potential to rise dramatically as expressed in paper money terms.

Gold prices have now softened, offering investors yet another chance to get back on board what is perhaps the most compelling form of money- and portfolio insurance available.

Why large cap gold miners are being so undervalued by equity investors relative to gold is an open question that takes us back to the realms of stories. That the discount exists is undeniable; all that is required to crystallise that value, we believe, is patience.

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Mon, 03/26/2012 - 13:17 | 2291544 devo
devo's picture

Why large cap gold miners are being so undervalued by equity investors relative to gold is an open question that takes us back to the realms of stories

  1. People are scared of gold volatility.
  2. GLD gets some of the money
  3. Bullion gets some of the money

Mining stocks are cheap and pay dividends. Makes it a much better play than GLD. Bullion has its role as insurance, but for actual investment miners are better. If the masses ever see this there will be a big move. I'd love to here Warren Buffet's argument against gold stocks.

Mon, 03/26/2012 - 13:25 | 2291603 yabyum
yabyum's picture

Mining stocks are cheap because I got them when they were expensive! I have much better luck with the metal, PHYS from Sprott has been my only stable paper holding.

Mon, 03/26/2012 - 13:59 | 2291752 Pladizow
Pladizow's picture

Get in the miners after the shit hits the fan!

Mon, 03/26/2012 - 15:08 | 2292012 oddjob
oddjob's picture

Long way down to reach 2008 levels on miners.

Mon, 03/26/2012 - 16:55 | 2292377 Cast Iron Skillet
Cast Iron Skillet's picture

Purchasers of miners are often gold bugs. I think that gold bugs are often people who believe that the shit is going to hit the fan. Miners are stocks, and as such, they will likely drop if there is a big drop in the general stock price. Ergo, the miners will fall when the shtf. Ergo, wait to buy miners until after the shtf.

... and then, these same folks, like myself, are disappointed when the miners don't shoot up like hell ...

Mon, 03/26/2012 - 19:33 | 2292870 Pinch
Pinch's picture

gold bugs are often people who believe that the shit is going to hit the fan

That may well be, but the shit hitting the fan could be, even should be, massive debt deleveraging and hence deflation, which is not great for precious metals. I'm a gold bug too, but only in the long term (5-20 years).

 

 

 

Rush Limbaugh in his own words: I'M A NAZI, OH YES I AM!

 

Mon, 03/26/2012 - 18:44 | 2292723 cranky-old-geezer
cranky-old-geezer's picture

 

 

Get in the miners after the shit hits the fan!

Miners will never be a good investment again.  Mines are too exposed to government control.  If gold rises substantially, mines will be nationalized or something like that.

Don't invest in anything so exposed to govt cotrol.  This govt can regulate gold mines right out of business.

Physical in your possession is the only thing govt can't control.  If it's in some account somehere, forget it, govt can seize that account anytime they want.

Mon, 03/26/2012 - 18:58 | 2292772 Deo vindice
Deo vindice's picture

Yep. Invest in miners AFTER the product has been mined, refined and designed (preferably in 1 oz rounds).

IOW - buy physical.

Mon, 03/26/2012 - 14:23 | 2291851 Dre4dwolf
Dre4dwolf's picture

From a short term view you are correct, but on the long run (say 10 ~ 20 years) the mining stocks could be worth more than gold.

 

A proper comparison would be "owning the golden egg, vs. owning the goose who lays the golden eggs".

:P

 

I just dont trust the mining companies ATM (fraud).

Mon, 03/26/2012 - 14:49 | 2291928 Buckaroo Banzai
Buckaroo Banzai's picture

There is HUGE political risk in owning mining shares. Government nationalization of mines is a real problem in parts of South America. And given that the US has now become a banana republic, in an environment of rapidly escalating gold prices, it's easy to anticipate either (a) "windfall profits taxes" on gold miners or (b) outright nationalization.

Seizing physical (a la 1933) makes no sense this time around, for a variety of excellent reasons-- the most salient of which is that, unlike in 1933, gold is no longer legal tender. But taxation and nationalization of miners will be real threats in the near future.

Mon, 03/26/2012 - 15:07 | 2292009 AgShaman
AgShaman's picture

"Windfall Profits Tax" will be all the confiscation they need on the physical metal also...should you want to convert it into something else and "realize" any gains.

I'm sure they'll have to of course update their ledger at the Treasury....and re-index their holdings at the "new and improved" book value of an ounce of gold....vs...the $42.22 it currently resides at.

Oh...and for those pesky Silverbugs....it's a strategic metal....so ownership needs to be outlawed for "national security" purposes. As a show of good faith....the govt. is prepared to take it off the hands of all the hoarders....at current spot pricing of course, since our generosity knows no bounds.

The govt. will look out for us all

Mon, 03/26/2012 - 18:37 | 2292682 passwordis
passwordis's picture

Silver has too many industrial uses. It's hard to image how they would go about confiscating it again. Although countries have outlawed the sale of Silver Colloidal.. and the FDA is working very hard to do the same.... but this is because of the health benefits. The FDA is a front for the pharmaceutical industry and anything that actually works to improve health is the last thing they want on the market.

Mon, 03/26/2012 - 18:59 | 2292776 AgShaman
AgShaman's picture

What part of "strategic"....in terms of industrial uses don't you understand?

https://en.wikipedia.org/wiki/List_of_United_States_defense_contractors

Can't make the global war machine move without silver.

Do you have inside information about the pending World Peace they are planning on rolling out soon?

Mon, 03/26/2012 - 22:35 | 2293212 passwordis
passwordis's picture

 

Hey, five people claim Silver colloidal caused them to turn blue and three of them are named John Doe.!!!   I'm convinced!!

Actually I know all about argyria.. The Atomic Size Particles in colloidal silver are are 250,000 times smaller than nanoparticles.  It's the nanoparticals that are claimed to embed themselves in the skin. The silver particles in Silver colloidal are much too small to become embedded in the skin tissue.

 18,000,000 people use colloidal silver a year and they can only come up with three people who claimed to have turned blue because of it and two of them are pictures of people taken in the 1950s..  Use the ole noggin.

There are many examples of people with blue skin throughout history,  Here is a story from ABC about a family of blue skinned people.http://abcnews.go.com/Health/blue-skinned-people-kentucky-reveal-todays-.....

 

Mon, 03/26/2012 - 22:31 | 2293217 passwordis
passwordis's picture

 And please, do a little research on http://www.quackwatch.com.    This site ranks right up there with snopes.com as far as being a source for legitimate information.

Mon, 03/26/2012 - 13:39 | 2291664 n8dawg84
n8dawg84's picture

How does one start buying mining stocks?  Can it be done with a 403(b)?

Mon, 03/26/2012 - 14:01 | 2291762 Pladizow
Pladizow's picture

Easy, with DGX or DGXJ, but HIGHLY unlikely your 403b will allow this!

Mon, 03/26/2012 - 14:47 | 2291925 Random_Robert
Random_Robert's picture

"Easy, with DGX or DGXJ, but HIGHLY unlikely your 403b will allow this!"

Dude-

The first rule of pumping (or even simple touting) is to GET THE SYMBOLS RIGHT...

GDX

GDXJ

 

:-)

Mon, 03/26/2012 - 14:03 | 2291772 devo
devo's picture

Research the stocks, then buy them? GG, ABX, NEM etc are the big ones.

It's not hard. Start with a few shares if you're risk adverse, then dollar cost average.

Mon, 03/26/2012 - 18:46 | 2292732 passwordis
passwordis's picture

 

Research the stocks, then buy them?.. It's not hard

 

 I found it extremely hard to find out which minors to invest in.. so hard that I decided not to invest.. Although Ron Paul released his portfolio and I thought of just picking one or two of those minors.  There is so much to learn that sometimes it's better to listen to someone who you trust... take a chance and buy the companies he buys. 

 

 

 

Tue, 03/27/2012 - 00:04 | 2293392 Newager23
Newager23's picture

Research the stocks, then buy them? GG, ABX, NEM etc are the big ones. It's not hard. Start with a few shares if you're risk adverse, then dollar cost average

That's true if you buy ETFs,  but Juniors (where the big money is made) takes some time to learn. I recommend buying ETFs to start (GDXJ for gold miners, and SIL for silver miners). Also, some bullion for a foundation. They you can begin to learn how to invest in Juniors. I have an article and a video on my web page (www.goldsilverdata.com) that will help you. I also have a book that teaches you how to invest in gold and silver mining stocks. Currently the Juniors are extremely undervalued. I have over 50 companies in my database (on my web page for free) that have ratings of 3 or higher (potential 5 baggers).

Currently no one wants to invest in gold and silver mining stocks (notice all of the negative posts!). However, that will change once gold reaches $2000 and the miners become very profitable. In my opinion, now is a good time to get in. The XUA index is actually lower than 2008, which is remarkable considering the increase in the gold price.

Newager 

 

Mon, 03/26/2012 - 14:00 | 2291758 Sudden Debt
Sudden Debt's picture

People hate miners because you can't trust internal geological surveys which all promise El Dorado

Mon, 03/26/2012 - 14:12 | 2291794 devo
devo's picture

Yeah, but you can't trust anyone or anything. Didn't you see that tungsten kilo bar the other day? I trust miners and their surveys more than federal reserve notes so I trade in my notes for shares and get a higher interest rate in the form of a dividend. Risk is a gradient and relative. Even bullion has risk (Robbery, fake gold, etc).

Mon, 03/26/2012 - 15:54 | 2292157 FrankDrakman
FrankDrakman's picture

I trust miners and their surveys more than federal reserve notes

Absolutely. I'm sure you've recovered your losses from Bre-X and Cartaway by now.

Watch out for falling geologists, though.

Mon, 03/26/2012 - 15:09 | 2292018 Spitzer
Spitzer's picture

All of these reasons have been done to death.

Kinross fell 20% in one day because they where having some problems with a mine. A few days later, that Carnival cruise ship capsized and people died. Carnivals stock fell a measly 8%. wtf

Kinross went below its 2008 low in the same year gold made its all time high. ????

Mon, 03/26/2012 - 21:53 | 2293151 dereklutz
dereklutz's picture

Kinross is below its 08 low for blowing billions overpaying for redback---a wee bit more than a mere "mine problem"........christ, with all due respect, i hate your face............but fully respect your taste in trim

i think the miners also are getting killed by costs (energy) rising as fast as bullion..........mayber the bullshit HF short crap too

wow.......that felt good, don't think i've ever posted, or at least in a yr or two

Tue, 03/27/2012 - 00:29 | 2293433 ClipperBASIC
ClipperBASIC's picture

When stocks are cheap there is usually a good reason.

In the PM mining sector, there is an 800lb Gorrilla sitting on the market.

That beast has unlimited funny money to naked short.

IMHO best to steer clear of rigged casinos and rigged markets.

 

Mon, 03/26/2012 - 13:14 | 2291556 aVian
aVian's picture

Jim Sinclair was cool before Gold was cool

Mon, 03/26/2012 - 13:18 | 2291564 GeneMarchbanks
GeneMarchbanks's picture

'Gold prices have now softened, offering investors yet another chance to get back on board what is perhaps the most compelling form of money- and portfolio insurance available'

"Gold is money, everything else is credit" -- Some Muppet or other

 

Mon, 03/26/2012 - 13:17 | 2291567 kito
kito's picture

I will give you 1 egg and some cheese for your stock certificate.....sorry, no....keep your now defunct stock certificate from the now nationalized mining company...

Mon, 03/26/2012 - 13:24 | 2291594 Al Huxley
Al Huxley's picture

So why not nationalize AAPL then, or HD, or CMG?  I'd like to see some evidence as to why this argument's more compelling for mining companies than tech or retail.  Otherwise it's just another narrative to try and explain why the market's doing what it's doing.

Mon, 03/26/2012 - 13:30 | 2291626 manhunter
manhunter's picture

Because gold is the ultimate wealth reserve, and mines will be treated as utilities. Gold is too valuable; allowing companies to mine it at the future price is allowing them to print money, a government monopoly.

We don't know the price of physical gold, and haven't for a long time. We only know the price of paper gold which trades at par with physical currently, but not for long.

Mon, 03/26/2012 - 13:33 | 2291638 Al Huxley
Al Huxley's picture

My point is that if countries want to steal money from profitable corporations, then they can just as easily hit retail, tech, etc, as mining companies, a fact that many people seem to ignore.

Mon, 03/26/2012 - 13:35 | 2291648 Quinvarius
Quinvarius's picture

You mean like GM?

Mon, 03/26/2012 - 13:39 | 2291665 Al Huxley
Al Huxley's picture

They didn't steal GM, they bought a bankrupt company for political reasons.  The rationale for buying gold miners isn't to 'save the jobs' its to 'confiscate the profits'.

Mon, 03/26/2012 - 13:54 | 2291728 Quinvarius
Quinvarius's picture

I think the bond holders would disagree that it was not stolen.

Mon, 03/26/2012 - 15:16 | 2292037 Al Huxley
Al Huxley's picture

Fair enough.  But my point was the motivation.  True, though, the bondholders got screwed.

Mon, 03/26/2012 - 16:02 | 2292183 kito
kito's picture

If a country nationalized a tech company, the company would be dead on arrival. No innovation would ever come of it again. Oil, metals, lumber and minerals are different. The inherent value is in the ground and that value isn't contingent on who owns it.

Mon, 03/26/2012 - 16:15 | 2292239 Likstane
Likstane's picture

Even the government knows AAPL isn't money; especially 1 second after they deem it so.

Mon, 03/26/2012 - 14:24 | 2291768 Dr. Engali
Dr. Engali's picture

If I remember my contract law correctly, first lien holders have the debt secure by any property the company owns. The lien holders get paid before anybody else in bankruptcy proceeding. So yes the government did steal GM from the bond holders.

Mon, 03/26/2012 - 14:23 | 2291855 francis_sawyer
francis_sawyer's picture

 So why not nationalize AAPL then?

Because iPads are not melted down (arguably filled with tungsten rods), then stacked in Ft. Know, West Point, or wherever)... Neither are they demonized & called 'barbaric relics' (though I suppose the same could not be said about the Newton)... If the government nationalized AAPL, sheeple would realize that we've bebome a Soviet style dictatorship... Can't have people REALIZING they have a jackboot on their necks...

It's a full court PR press... By the time TSHTF. TPTB hope to have the people 'trained' to think that nationalizing miners is their patriotic duty...

 

Mon, 03/26/2012 - 14:56 | 2291958 Buckaroo Banzai
Buckaroo Banzai's picture

Nationalizing miners is politically a very easy thing to do. The talking points practically write themselves:

-- "They are making windfall profits off of a national resource! Social justice demands that we tax this unearned windfall!"

-- "National security dictates that The People (i.e. the government) must control production of this strategic monetary resource!" (Obama's recent EO lays the groundwork for this)

-- "Greedy gold miners are taking advantage of our collective economic misfortune!"

-- "In this time of trouble, everyone must make sacrifices, especially the most fortunate among us!"

Mon, 03/26/2012 - 21:35 | 2293095 StychoKiller
StychoKiller's picture

"Same as it ever was!"

Mon, 03/26/2012 - 14:01 | 2291764 Sudden Debt
Sudden Debt's picture

They bought a 1$ value company and waisted billions on it. It's one of the big scars on the economy formely known as "capitalisme"

Mon, 03/26/2012 - 13:40 | 2291663 manhunter
manhunter's picture

It's not stealing. Miners will be allowed to make a profit. Think of it as a windfall profits tax. Post revaluation the price will be staggering.

Mon, 03/26/2012 - 14:53 | 2291950 AustriAnnie
AustriAnnie's picture

Miners often operate in multiple countries, minimizing the nationalization threat.  Seems to me that the threat of nationalization in some countries only serves to increase the value of gold in the overall market and miners in the countries that haven't nationalized?

Second, its far more likely the gov't (in the U.S. at least) will not outright nationalize, but rather make it easier for some companies to operate than others (according to campaign contributions).  Just like in most other industries, they will sponsor a few large players while making it costly for the out-of-favor companies to do business.  We see this now in utilities, oil, insurance, banking, car manufacturing.....(point to an industry that doesn't have gov't tipping the scale to some companies over others).

 

Mon, 03/26/2012 - 14:58 | 2291967 Buckaroo Banzai
Buckaroo Banzai's picture

The individual mines will be nationalized, not the mining companies themselves. This happens in South America all the time.

Tax the mining companies, seize individual mines, or a combination of both. That is how you nationalize the assets.

Mon, 03/26/2012 - 14:14 | 2291807 tmosley
tmosley's picture

Those companies don't have any money.  All they have are dollars.

Mon, 03/26/2012 - 13:32 | 2291634 Vince Clortho
Vince Clortho's picture

A good point.  And a tough question to answer.

We know that governments (including the US) have confiscated gold in the past, and could conceivably do so in the future.  If that does happen, it is not a stretch to envision some type of action involving PM mining companies.  I believe during WWII miners of strategic metals were "regulated" by the government.

 

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