Four Reasons Why Gold Mining Executives’ Predictions of Future Gold Price Behavior Are Often So Distorted

distorted perceptions

There are three reasons why gold mining industry executives  often have distorted views of future gold price behavior that turn out to be the opposite of reality and why they have been reactionary, versus visionary, as a group, regarding price trends in precious metals. In fact, a great many, I discovered, often deployed the exact opposite strategies and leadership one would expect given their daily immersion in the precious metals industry. For example, gold mining industry executives often locked in significant percentages of future production at terrible prices with futures contracts that locked in far lower than market prices during bullish markets, actions that severely impinged upon their revenues, profit margins, and earnings per share. In fact, it is much more common for mining company executives to constantly make such mistakes versus refraining from making them, so much so that recently, despite the fact that I discovered a gold mining company maintained a hedge on a decent percentage of future gold production at an average price of US$1,170 an ounce, I still suggested this company as a solid buy to my patrons. The fact simply is that often, even when everything else about the operations of a gold mining company is attractive, one often will find that management has encumbered future gold production with undesirable hedges. And on the contrary, they often remained unhedged during bearish markets, failing to protect future production from extended periods of price decline. Furthermore, as gold mining operations often take place within environments in which expenses are denominated in non-USD fiat currencies while revenues are denominated in US dollars, skillful management of Forex issues is also required. However, often their Forex management has not been much better than their dismal record of future price predictions, with many negotiated Forex contracts accounting for millions of dollars of losses as revealed on their balance sheets.

For years, such poor management confounded me. I would often think, “How can my predictions of future gold price behavior (and silver price behavior) be so much better than the very people that deal with industry news day in and day out for decades?” To punctuate my beliefs, Barrick Gold Corporation CEO Mark Bristow recently stated at a mining conference, “No one [in the industry] made any real money” during the last cycle, an astonishing statement that reveals in general, industry executives once again failed to foresee future gold price behavior that manifested over the past 12 months, when one realizes spot gold’s meteoric rise from June of last year to early August of this year of nearly 78%. Mr. Bristow further revealed the general lack of vision that exists among industry management regarding future gold price behavior when he stated that the long-term price expectations Barrick executives hold for gold is a mere $1,200 an ounce, nearly 39% lower than current prices today.  For these reasons, I have always told my patrons to never blindly follow what a billionaire does and that it would be a huge mistake to go all in on Barrick Gold stock simply based on the reported news of Warren Buffet’s huge purchase of Barrick shares. Of course, shares of any stock always receive a nice bump higher in share price after such news is reported, due to the copycat nature of investing and people that will pile into such shares after such news comes to light.

But as my patrons already know, there are much better opportunities for investing in gold mining companies led by executives that understand the coming death of fiat currencies and the consequence that will have on gold prices and that understand the reasons that have created massive divergences in the prices of physical gold (and silver) and spot gold and silver prices. My patrons received analysis of a gold company earlier this year (well before the breakout in gold and silver prices) that yielded just under nine times more than the 82.17% rise profit of Barrick Gold between 20 March and 10 September this year.  Furthermore, my patrons received analysis and a suggested buying price of a non-mining stock earlier this year that outperformed Barrick Gold by 38 times in price appreciation from 29 January to 5 August of this month (on the establishment of a low-risk, high-reward long position, and not with an opened options strategy).

Though, to this day, I can still only speculate about the reasons why so many gold mining executives are among some of the worst analysts in regard to future gold prices when in fact, they should be among the best, I believe that much of their terrible predictive analysis can be explained by four reasons.

ONE. Membership in global gold organizations that are heavily influenced by Central Banking narratives.

Central banker narratives tend to be heavily biased towards lower or flat, rather than much higher, future gold prices. Due to heavy suppression of gold prices over the years by Central Bankers, I think that in general, gold industry executives tend to be more conservative and cautious than necessary, especially after being told repeatedly for many years by Central Bankers of coming lower prices in precious metals, and then witnessing these predictions come true because bankers artificially manufactured them, as has been exposed in court admissions of such gold price manipulation behavior. Consequently, this repeated prolonged exposure to Central Banker disinformation campaigns places many gold mining industry executives behind the curve of understanding substantial shifts that occur in the gold price environment, including the ones that happened in 2016 to launch the new gold and silver bull phase, and the significance of the price breakouts that have happened this year in predicting future much higher prices.

TWO. A lack of understanding of these gold price manipulation schemes has prevented understanding that the efficacy of such schemes has been greatly reduced this year.

Because all the contracts of gold production are based upon spot gold prices, mining industry executives only focus on spot gold prices and fail to develop an understanding of why prices of physical gold in other forms (coins, bars) diverge from spot gold prices. Therefore, when the divergences grew greater this year, they didn’t understand that this divergence meant that that they typical gold price suppression schemes of Central Bankers were losing their efficacy, especially since most don’t even believe that Central Bankers have suppressed gold prices for decades due to their involvement in global gold organizations influenced by Central Bankers. Furthermore, when the percentage of owners of gold and silver futures contracts that stood for physical delivery exploded higher this year, leading to consequent much greater demand for warrants of the physical stocks of gold, versus settlement in fiat currencies this year, I don’t believe that many gold mining industry executives understood the importance of this development to future gold prices. Lastly, if owners of the warrants see the light and “load out” their physical gold when they realize the foolishness of holding warrants on COMEX gold, this realization will no doubt place more upward pressure on gold prices.

THREE. As is human nature, people color present decisions based upon past mistakes, even when conditions have changed that no longer merit viewing past mistakes through the same lens.

Instead of analyzing this year’s gold and silver price movements without being colored by past mistakes gold industry executives made, as is human nature, gold mining industry executives have made the mistake of analyzing future gold and silver prices at the current time under the biased lens of their past mistakes that included massive acquisition binges and expansion during the last gold and silver bear period from 2011 to 2015. Of course, spending huge capital expenditures for acquisitions of more mines and ramping up budgets for exploration, development and production during an extended period of declining gold and silver spot prices led to many executives having to declare significant impairment of assets and to suspend production. Of course, this led to plummeting revenues, profit margins and share prices. Consequently, even though conditions are completely different today than at the start of 2011, including the reduced ability of Central Bankers to so easily collapse gold and silver prices, making management decisions based upon completely different conditions is likely to lead to future underperformance.

 

FOUR. Constant residency within echo chambers with no dissenting opinions.

The lack of exposure of gold mining industry executives to dissenting opinions such as mine is a major reason for closely held wrong beliefs within the industry about future gold prices. If you are constantly around people that validate your beliefs, it is extremely difficult to ever consider that your beliefs could be wrong. This isn’t necessarily a fault that is specific to gold mining industry executives as you will find these same faults constantly being expressed among financial industry executives as well. For example, when I was still employed as a private banker and private wealth manager many moons ago, I never met a single colleague that called out the bogus non-farm payroll data or the bogus unemployment and inflation statistics reported every month. Not one. Even though this data was, and still is, so obviously inaccurate.  And decades later, today, it’s still not difficult to discover hedge fund managers that manage billions of dollars of AUM who still incredulously do not understand the bogus nature of such statistics, and more incredulously have numerous people that trust them with the management of billions even though they understand nothing about the reality of current inflation rates, and still speak of how they expect inflation in the US to increase soon, even though real inflation rates in the US are at least several multiples higher than the “official” stated rate.

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