When to buy gold and silver and mining stocks.

[friendly_jacek]

Re: When to buy gold and silver and mining stocks.

i've been somewhat invested and my juniors are down 40% from last month. It's hard to get enthused about more buying but that is what I need to do soon, at least partially. I remain even more bullish than ever.

I would be interested in getting those junior mining stocks at these levels. Many of those trade in Toronto. Ameritrade told me that they do not support foreign stocks. How do you trade them if I may ask?

[c1ue]

Re: When to buy gold and silver and mining stocks.

How is it that interest-rate derivatives do not obey the Law of Supply and Demand? The more there are of them, the more they are in demand.

When I saw this, I figured I am really stupid or this fellow Antal is.

My understanding of interest rate derivatives is that they are specific contracts with specific conditions: interest rates as well as time, reference rates, etc.

As such there are infinite possible derivatives extending into the future as well as laterally to cover all possible instances.

They're like pari-mutuel bets with a pretty much infinite spread of possible winners and unlimited time window.

Supply and Demand is irrelevant; to use the derivatives to "fully hedge", you theoretically have to cover all possibilities thus the derivatives total can increase forever.

Its like the old story of 2 laundries setting up shop during the Gold Rush; after the gold ran out and the miners/customers left, they both got rich washing each other's laundry.

The interest rate derivatives are the same way.

Then there are the derivatives on the derivatives...

[Guest]

Re: When to buy gold and silver and mining stocks.

Er, Clue -

Not sure if you were missing the point that his question was indeed rhetorical?

Or am I merely missing the point here, that it's your reply that's rhetorical, as a means to put provide us with your own exposition of what derivatives should be defined as?

Fekete is a professor of Mathematics and Statistics at the University of Newfoundland. "I figured I am really stupid, or this fellow Antal is" is perhaps more an impertinent than a pertinent critique?

There is indeed a rather large point in this article - but maybe you missed it

[Finster]

Re: When to buy gold and silver and mining stocks.

When to buy gold and silver and mining stocks.

The short answer: When you are bullish on both stocks and gold & silver.

And the short answer covers about 90% of it.

The key thing to keep in mind is what gold and silver mining stocks are. They are not gold and silver. They are stocks. They are shares of equity in corporations that are in the business of mining gold and silver. As with any other company that produces and sells a product, profitability depends in part on the prices it sells its product for. And the profitability of owning its shares depends in part on how profitable the company is.

Please pay close attention to the phrase "in part"!

In one scant paragraph, we already have two levels of it!

In other words, the profitability of owning shares in gold and silver mining companies depends in part on in part on the prices of gold and silver.

The remaining factors are legion. The competence and integrity of management. Political risk. The balance sheet. Interest rates. Labor unrest. And last but not least, how the stock market as a whole is doing. Mining stock becomes very high beta when the stock market is volatile, in addition to the volatility of gold and silver prices themselves. When the stock market sneezes, mining stock catches cold. In the crashes of 1987 and 2002, mining stock crashed harder than the rest of the market. In this latest rout, the same phenomenon was in evidence again. Whatever else you do, do not buy mining stock under the illusion that it will protect you in a stock market crash!

[c1ue]

Re: When to buy gold and silver and mining stocks.

Lukester,

I did get his point, but the question is whether it is invalidated by his numerous goofy and also some outright wrong assertions.

Being a professor of mathematics and statistics doesn't mean he knows squat about derivatives and their market - after all, the Nobel Prize winners in Economics, one of which was a Professor Emeritus in Finance at Stanford's graduate school of business, clearly didn't know squat (i.e. LTCM).

Of course, you can draw the right conclusion from the wrong arguments, but you know my scepticism on gold. I just spelled out a little more detail in a reply to Raja in the commodities forum:

Thus I actually am not convinced that gold is time tested as an inflation hedge; unlike many other PMs it has zero use except decoratively - the only argument is finite supply.

Fred later added the point that gold has had value in recent times solely as defined by governments.