Gold shares

[DRumsfeld2000]

I have quite a reasonable investment in precious metal shares and am shocked at the shake out. OK gold has declined a bit, but the fall in shares is a true bloodbath.

Do people have any thoughts on this. I have to admit that I did expect a fall, but this collapse is far greater than I had expected.

[jpetr48]

Re: Gold shares

I have quite a reasonable investment in precious metal shares and am shocked at the shake out. OK gold has declined a bit, but the fall in shares is a true bloodbath.

Do people have any thoughts on this. I have to admit that I did expect a fall, but this collapse is far greater than I had expected.

there are many explanations from cost of mining to paired trade of long gold short miners etc.one of the most interesting thesis I heard was how mining companies reported their financial results. Now I could be mistaken as this was a quick read but I believe some of these companies projected profitability based on gross margin numbers and did not come clean with all the cost numbers giving an operating margin.

so hedge funds took out the switch blade and cut these guys to pieces. Think the mining companies from what I read will change their reporting habits.

Eventually the tide will rise and the healthy companies with cash flow will get back on course.

[Raz]

Re: Gold shares

I haven't done technical studies on the gold miners but the HUI is commented on regularly by Dan Norcini:

http://www.traderdannorcini.blogspot...t-updated.html

ALSO: http://www.traderdannorcini.blogspot...-analysis.html

As for individual companies you might find some research here:

http://www.andrewjohns.ca/market-inf...old-production

The ETFs have pulled a lot of money away from the gold mining companies' stocks, and we're so long removed from any type of gold standard (1971) that most people have no frame of reference for a company that mines "money".

I'll try to find some good chart work on the Indexes and individual companies if you'll PM me with a list of symbols.

[Chris]

Re: Gold shares

Fund redemptions are also a major factor. Managers are having to sell quality stock to meet redemption demands.

Some of these stocks will be great short term reversion trade candidates in a week or so.

[globaleconomicollaps]

Re: Gold shares

I have quite a reasonable investment in precious metal shares and am shocked at the shake out. OK gold has declined a bit, but the fall in shares is a true bloodbath.

Do people have any thoughts on this. I have to admit that I did expect a fall, but this collapse is far greater than I had expected.

I never quite understood the appeal of mining stocks. I think that people always bought them because they had no other exposure to gold and silver. Now that you can buy gold and silver more or less directly on the exchanges I should think the there will be less and less interest in miners. I recently became aware that there is an obscure tax dodge revolving around gold exploration companies. These look to be about as rare as hens teeth.

[BK]

Re: Gold shares

Isn't this volatility on of the key reasons itulip has NEVER recommended Miners - its very easy to be shaken out because of pull back in Gold.

I took a ride on SLW (Silver Wheaton) - bought it at $9-10 in 2006. I was feeling like a complete idiot when it was traded at $3-$4 and when it bounced back up and I had a 300% return I sold. So, what I learned when you own Miners (or proxy for miners like SLW) there are times when they absolutley plummet. Always be liquid enough so that you aren't relying on these 'bets' and there is a high likelyhood that a Miner can completely crater (you can't bet on one or two - a Mutual fund its probably the savest way to go).

The other lesson that itulip regularly preaches - Gold Miners are not equivalent to Gold Bullion. Gold Bullion will go up in this zero interest world - Miners need to dig the gold out of the ground, refine it, and sell it (there is a lot that can go wrong).

[cobben]

Re: Gold shares

I never quite understood the appeal of mining stocks.

The appeal is largely a atavistic remnant from older goldener times, when investors actually made fortunes from mining stocks.

Theoretically a mining company should mint money for its owners, practically these days they seem to mint money, but only for the management, a few select early investors, and the bankers of course.

Of course, that is the main problem with all equities these days, now isn't it, so why should mining stocks be in relative disfavor? Banksters playing games?

[jpatter666]

Re: Gold shares

Isn't this volatility on of the key reasons itulip has NEVER recommended Miners - its very easy to be shaken out because of pull back in Gold.

The other lesson that itulip regularly preaches - Gold Miners are not equivalent to Gold Bullion. Gold Bullion will go up in this zero interest world - Miners need to dig the gold out of the ground, refine it, and sell it (there is a lot that can go wrong).

You said it. Energy intensive in a PCO world, environmentally destructive (and thus subject to various pressures), often in politically unstable regions -- and as Hugh Hendry commented, if they ever get truly valuable, highly subject to nationalization.

I do own some gold miners which I view as an open-ended call option on gold. You have to be careful which ones to pick (see: South Africa miners for a no-no), although I own both ETFs and specific miners. Overall, not a large position in my portfolio although I *am* considering adding to it because even with all the negatives, some of these stocks have been beaten to absurd lows and several not only pay dividends tied to the gold prices but have recently (claimed) to find religion and are tightening costs and management.

I will admit, that one thing that keeps me from loading is I expect a general stock pullback (and as these are stocks I might be able to get them even lower).

I follow Fleckenstein and Fred Hickey both of whom are highly positive on gold and the miners. Hickey just recently published his newsletter where he admits he's definitely taken losses, but also discusses a similar moment where it seemed he and his followers were on the wrong path and all was lost. As he put it -- "gut-check time".

The path? Shorting what they thought was a ridiculous market. The time? October 4, 2007.

Market hit the high on October 9 and we all remember what followed.

The Gold Bullish Index was at 3.3% (at the time of his letter) which is a serious contrarian indicator -- however he does state that in the depths of 2008 this hit 0.

BTW, Hickey is a very sharp guy -- expertise is on tech stocks although at the current time he finds very little worth buying. Very nice monthly newsletter. Also Fleckenstein's site ($120/year) I consider one of the very best bargains going -- just for the Q&A section which he does daily (and often has 20+ responses) not to mention the daily commentary.

[BK]

Re: Gold shares

We are reading the same sources - I agree regarding the Ask Fleck.

Regarding - feeling like you are on the wrong side of a trade. The "Big Short" was very instructive to me that there are times where you have to wait for your investment thesis to come true. At the bottom with may Silver Wheaton shares - I felt like selling them everyday - it was much nicer to sell them with a 300% return.

Similarly, its like the feeling NOW that you need to get rid of any Gold you own because the economy has recovered.........and who could be dumb enough to own gold...
You need to own Bonds and the S&P ......... ;-) Better load up before the price of Bonds and S&P goes up.....they aren't making any more of...... ;-)

[dropthatcash]

Re: Gold shares

I have quite a reasonable investment in precious metal shares and am shocked at the shake out. OK gold has declined a bit, but the fall in shares is a true bloodbath.

Do people have any thoughts on this. I have to admit that I did expect a fall, but this collapse is far greater than I had expected.

You need to understand the basics before you start giving your cash away to smarter money players. The average Gold share has only pulled back to the same level(s) they were at when gold last traded at these levels.

Since the cost of mining anything is always going to be some number higher than zero, the breakeven point of a given miner is also higher than zero. If the cost to produce gold is $800 an ounce and gold sells for 1600, than profits are 100% of cost. If gold simply retraces $400 (25%) to $1200, the company's profits are down 50% and in theory, shares should be down 50% as well. This of coures works to the companies advantage as gold prices rise and one can expect shares to outperform gold.

[jpatter666]

Re: Gold shares

You need to understand the basics before you start giving your cash away to smarter money players. The average Gold share has only pulled back to the same level(s) they were at when gold last traded at these levels.

Since the cost of mining anything is always going to be some number higher than zero, the breakeven point of a given miner is also higher than zero. If the cost to produce gold is $800 an ounce and gold sells for 1600, than profits are 100% of cost. If gold simply retraces $400 (25%) to $1200, the company's profits are down 50% and in theory, shares should be down 50% as well. This of coures works to the companies advantage as gold prices rise and one can expect shares to outperform gold.

That's the idea, but it hasn't worked out that way for the past two years. Several reasons for that which is why IMO these days you really have to pick and choose your gold miner companies.

[lektrode]

Re: Gold shares

and/or maybe its because china had got bit over-extended, taking out a fairly big chunk of demand (not to mention speculation)
in the commodity sector?

or at least expectations of demand = big money 'rotates' out of that sector?