Reading the various threads, it seems that the majority are watching and basing their opinions on the idea of future happenings on spot price of gold alone. A gold bull market has been going on for years, but only this year has the fallibility of almost all foreign financial systems come into play, increasing the POG way above its normal average monthly increase. Thus my point about a bubble ( due to financial default possibilities ) that is beyond the bull market rate of gold. I can easily see a drop of several hundred dollars and still have a bull market occurring for the next several years until the world's financial systems stabilize. Many on the forum states they are "Long term" gold believers, with such as "holding forever", , or "will leave as inheritance" , etc. But if so, why don't any post about the stock in gold producers if they are looking so far in the future. For example, GG ( Goldcorp), as most companies usually report results only quarterly. This quarter, they reported that due to a forest fire in one mine area, and flooding in a different area, that their revenue would be about 6% less for next quarter. This was with gold at $1520 and oil at near $100 br. Their stock has hammered by about 6%. Now just about 1 month later, gold is at 1870 or so, oil is $83 br. Their price of production was about $500 oz, but much of that was recovered in the high price of copper and silver at that time. Now that oil ( one of the biggest expenses) has retreated by 20%, and gold has increased by 20%, and the 6% production should be back by next quarter, why do not more long term gold people watch these companies. If silver and maybe even copper goes back to the previous levels, the gains could be even more. The old saying " only physical gold is real" are pulling their own hats over their eyes if they do not consider some of these companies. Companies are pulling real gold out, and this real gold will sell basically at real gold prices. They are under priced at the time ( IMO) because they are still being judged on gold at 1500 level. And most physical gold people said they wouldn't sell their gold anyway. I know there are several heavy posters who will reject this out of hand due to the "physical in hand" issue, but I thought maybe for the investors, this might be useful. There are other producers than Goldcorp that is in similar situations due to reporting every 3 months rather than spot every minute I do not currently own GG. Jim
One problem, and the buyer needs to do their research, is that many producers had already leveraged out their below ground gold before the price rose. So now they are left with digging it up and refining it at a loss, or going out of business.
There is a world of difference between gold mining stocks, and physical gold. Gold stocks can be increased (read: diluted) at any time. A mining company can be beset with problems, including natural disaster, political instability, decreasing reserves, and poor management, among other things. If you own stock in a mining company, basically you own nothing tangible, whereas with physical gold, you actually possess something that has been considered a monetary medium for millennia.
Based on the rapid rise in gold prices I wouldn't be surprised to see a blow off top at some point, but I don't think it will drop below the overall trend line. I do plan on moving into some gold mining stocks when my spidey sense goes off about the bond market, but that's only because I can't cash out my 401K and buy physical (that I am aware of) without retiring. Otherwise I would get out of the paper game altogether. I am less concerned with maximum profit as much as maximum safety and stability, and positioning myself so that no matter what happens I won't be left holding something that nobody wants to buy.
The bias at CoinTalk may be toward physical gold because this forum attracts coin collectors. It also SEEMS easier to just buy GLD instead of GG if you are positive about gold because it doesn't involve company analysis. And since the Bre-X incident, the mining companies are poison to many people. I happen to think the best option is to put some money into physical, some into ETFs or closed-end funds like CEF, and some in the mining sector. You never know what will be good and not so good.
It's not just aversion to the Bre-X incident (which most people probably don't remember anyway). You should check out one of the Big Three mining conferences (PDAC, Toronto; Mining Indaba, South Africa; Mines and Money London) and see how many mining companies are represented. Nearly all of them have slick exhibits and you can easily get the impression that they are headed for success, but relatively few of them actually achieve it. With all the pitfalls associated with the mining industry, you have to be constantly paying attention. Even the big players can run into problems. Rio Tinto, for example, has had trouble with the Chinese government over the arrest of some of RT's China-based employees. Meanwhile, Barrick has been having problems in South America, particularly Argentina. Really, why get involved in that sort of thing when you can just buy the product?
Everyone has their preference. Yes, I remember Bre-x, and yes it does take more work to study companies, than just handing over a bunch of dollars or euros and take away an ounce of physical. Goldcorp has an empty hedge book, no debt, about a $1B cash position and one of the lowest cost of production. If silver stays above $40, their cost becomes even less. Buying the product means that you are paying for some mine's activity to bring you the ounce of gold. Its production was not free. But it doesn't take much study to buy the physical. And the physical doesn't have any problems? All I hear when the price decreases is that someone is "Manipulating" the price or margins. Anyway, I don't need to defend the stand as we all do as we wish. I still think the price of gold is a bubble on top of a long term bull market, So best of luck Jim
The problem with holding stock in big mining companies is that those companies are under pressure from Wall Street to grow grow grow. And yet, because they are in the business of extracting non-renewable resources, they must reach a point where they can no longer grow at the rate that is expected of them, and if they cannot continuously find new reserves, they will start to decline. When that happens, they get kicked in the teeth by Wall Street. The company you mentioned may have $1B in cash, but it also has 800 million common shares outstanding (which works out to about $1.25 cash per share), it only pays a very small dividend (about the same as bank CDs) and the P/E ratio is 22 which seems to be high for a company which by its very nature cannot continue growing indefinitely.
Well, the "bubble" is not quite as large now since the fall from 1915 to 1825 approx. Hmm, but somehow physical 'bugs' expect gold to do so it seems ( $3000,4000,12,000), and they have less "facts" to back up their point as the companies have to produce. As I said, everyone should do what they wish, and best wishes to all. Jim
Well, I certainly have not been making such predictions about the gold price. The current levels are very surprising to me. However, my point was that mining companies, especially huge ones, are subjected to all sorts of limitations, including those imposed on them by nature. These limitations can be dealt with harshly by Wall Street once they become apparent. On the other hand, humans are the only ones imposing limits on the price of physical gold.
The problem with gold is that people are filled with fear over nothing and have purchased large quantities for personal storage. IMO the fear level can't get much higher. The media blows everything out of proportion. When everybody is done purchasing gold where does the demand come in? What happens when everything stabilizes and there is no more fear. Gold doesn't make money and actually costs money to store. In a stable economy why would one want to have holdings in gold rather than in bonds and in business? Take a look at the gold chart. As like all "J" curves they eventually crash because they can't be sustained.
Fear over nothing? Smaller countries have been brought to their knees over lesser economic problems than what the USA is currently facing. And the gold market is not just a US market. Are you saying that central banks are buying gold due to American media hyperbole? Do buyers in China and India really give a fig about what Glenn Beck is saying? Are people in Europe who are wondering what will happen to the Euro, being irrational by buying a monetary medium that had helped millions of fellow Europeans during times of economic hardship?
Mining is inherently a bad business [i.e., capital intensive, no control over pricing]. And yet there are established companies producing large quantities of gold annually which can be expected to continue producing large quantities of gold annually for many years into the future. When you combine a high fixed cost business with high and rising gold prices, the impact to the bottom line can be breathtaking, even with mediocre management. So the mining companies can have great appeal for investors sensitive to the potential risk and reward who wish to hold for a few years - but not forever.
Very good observations. I would just add that the general public isn't in gold yet, nor are most institutional investors so I think there is still more upside potential. But you are correct that everyone holding gold should be aware that it will eventually have to be exchanged for stocks, bonds, and real estate because gold promises no growth. An ounce will still be an ounce 100 years from now.
I think you are missing my point-- I am not saying that the big companies won't continue to produce gold into the future. What I am saying is that they cannot possibly continue on the path that Wall Street demands of them, which is GROW GROW GROW. At some point, extraction companies have to reach an apex from which they start a decline, even though they are still producing lots of product. As someone with close ties to the mining industry, I can say that I wouldn't touch mining stocks with a 10-foot pole.
I got your point and never mentioned growth possibilities. Regardless of what Wall St demands, the stock prices will rise if the gold price stays high, if only because the companies can use their cash flow to buy each other [or pay dividends like the good old days]. Gold miners haven't had Wall St support for a very long time -- not a bad thing. I'm not sure why you would avoid mining companies considering you have a lot of information about them. Maybe it's a tree and forest sort of thing. I've invested in mining companies off and on for a long time with profitable results.
