When looking to invest in gold, you can invest in physical gold, or you can invest in gold mining companies that are producers….Gold mining companies have underperformed the price of gold for the last year so are they a better buy now than physical gold? [In this article I weigh the pros and cons for each as I see them and explain how I came to my decision.] Words: 770
So says Shaun Connell (http://livegoldprices.com/) in edited excerpts from his original article* as posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Connell goes on to say, in part:
Plenty of investors have been saying that this a great time to invest…but there are a lot of variables, and there might be a good short term reason gold miners haven’t been outpacing gold. [Let’s take a look.]
Investing in Gold
The most obvious way to get gold exposure is to just buy the physical stuff or a gold ETF….but the problem with buying gold is that it’s connected only to the demand of gold. For some people, it simply does not have enough upside…and those individuals often start looking into gold mining companies….
Why Have Gold Stock Prices Lagged Bullion?
These gold mining stocks do not directly match the price of gold. Since most companies sell their gold through future contracts, they may not realize today’s spot price for several months. As such, their revenues typically lag the spot price.
As such, historically when gold mining companies have lagged the price of gold, they usually have a period following of outperformance compared to the price of gold. Since that has been the case for the first quarter of the year, gold mining companies could potentially be a good investment going forward…and since investing in gold mining companies is actually investing in a company, there is usually more upside potential and less downside potential compared to investing in physical gold.
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Over the last few years, gold miners simply haven’t kept up with gold. GDM and GDX, for example, have both trailed gold by nearly a 100% over the last 5 years…and there are others that are flat. There are, of course, penny stocks and medium miners that have done great, but most averages are level or down compared to bullion.
There are several reasons miners haven’t picked up the slack compared to bullion:
- Stocks have extra risk: They can go bankrupt. They can be nationalized. They can miscalculate their gold [reserves]. They can have accidents. They can whatever. There are literally thousands of variables that could destroy the companies in particular, much less slow down profits.
- Long-term bull isn’t certain: Not everyone is betting on gold for the long-term — there are a lot of short-term speculators. That’s why gold spiked so heavily in 2011, and gold mining stocks didn’t spike nearly as much — not even close. This lack of long-term certainty is priced into miners to some extent.
- Extreme long-term uncertainty: Some mining stocks…simply don’t have enough known gold in the dirt to last a… long amount of time. This is a risk. [Also,] it’s getting harder to mine gold…[while] gold’s price increasing can help, but it’s still a downward pressure on miners compared to gold bullion itself.
Is Now the Time to Buy?
There’s a chance that gold will drop…[if] the market is convinced (rightly or wrongly) of an imminent recovery….Billionaire Jim Rogers, [for one,] believes we’ll see some strong bubble-like economic recovery over the next year or two, so there’s a chance the price of gold could dip in the meantime.
Right now, [however,] the U.S. government has no real exit strategy for the insane deficits that we’re creating – except for money-printing, that is, and that means that gold prices are still a great long-term bet. Unless some sort of anti-deficit movement takes hold in the next five years, look for gold corrections as a time to buy into gold for the very long haul. Just don’t bet the farm – a well-diversified portfolio is always better than a huge lopsided bet.
The above are my reasons for adding to my position in physical bullion, and not miners. Unless something crazy happens and a good deal is revealed, I’ll likely keep this position and tactic for the foreseeable future.
*http://seekingalpha.com/article/573781-gold-mining-stocks-vs-physical-gold-bullion?source=email_macro_view&ifp=0 (To access the articles please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Are gold and gold stocks set to bottom? Not yet, according to my long-term measures of greed and fear. [I think a look at each of them below will substantiate my conclusion.] Words: 390
This analysis is an all-encompassing look at the developing trends in gold, silver, the HUI and XAU indices, West Texas crude oil, the US Dollar Index, 30-year U.S. Treasury bonds and the U.S. and Chinese stock markets. It is not a pretty sight! Words: 1428
Based on my technical analysis gold will drop to $1,450/oz. before the end of May and then go parabolic in the next C-wave to $3,950/oz. Below is a chart of how I see the price of gold unfolding over the next while.
As contrarian investor Baron Rothschild said, “the time to buy is when there’s blood in the streets.” Here are five reasons we believe this sell-off sets up a buying opportunity for gold. Words: 388
Before we end the year we will hit new highs in both [gold and silver]. Then the mining stocks [will] react. The big problem has been [to date has been that] there is not this momentum in the prices of bullion, which is keeping people away from the gold stocks. If we can get the price of gold and silver going back up, I’m sure people will come back into the mining stocks.
Great fortunes are made at super-bear market lows but you must have the money at the lows. [That is precisely] why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.
Most novice investors don’t understand the fundamentals and so they are puking up the mining stocks because they just want out but…this is when you want to buy, when sentiment is negative and fundamentals are astoundingly positive.
We suspect that many precious metals investors are saying, “We don’t want to play anymore!” and our reply is, “You mean you want to quit right now? Right at the bottom of this cycle? You must be crazy – and that is crazy with a capital C!” True, this is a very challenging market environment for resource shares, but we know what the ultimate outcome will be: higher share prices. The only question is “when” and our opinion is that we are very close in time (within days or a week or two at most) of being able to say that the lows are behind us. Let me explain. Words: 785
Gold stocks are now trading as though peace, prosperity, balanced budgets, and the repudiation of fiat currencies were about to break out across the globe, sending the metal back to $1,000 per ounce in the very near future. Given the stagflation conditions in the developed world, however, and governments’ proclivity to use money printing in order to jump-start an economy, it may be wise to take advantage of the current discount being offered on mining shares.
We’re invested in gold stocks not just to make money, but for the chance to change our lifestyles and with their lackadaisical [dare I say dismal] year-to-date performance, one may begin to wonder if they’re still going to bring the magic. [Here are my views on the subject.] Words: 740
If we’re not at a bottom [in gold and silver and precious metals stocks], we’re very close to it. The sentiment is dismal and you can see that particularly in the stocks which are almost tragic. I’m shocked quite frankly at the valuations and how low they are. In the fullness of time, this will be seen as one of the great buying opportunities of all-time.
Whatever their reasons, the number of investors wanting exposure to gold is increasing. Many who ignored it a decade ago are now buying. Those who started buying, say, five years ago, continue purchasing it today in spite of paying twice what they paid then. Slowly but surely, it’s becoming more important to more people…but what happens when it becomes a must-own asset to a substantial majority instead of a small minority? Sure, the price will rise, probably parabolically, but putting aside speculation on the price of gold for now, have you thought about what happens if you have trouble finding any actual, physical gold to buy? [Let’s explore that possibility and what that would mean for gold stocks in such an eventuality.] Words: 870
We’re making history here. Gold stocks have never been this undervalued before. We’ve had a 12 year bull market in gold, but we’ve also had a 15 year bear market in the mining shares…It’s very rare in market history to see an outlier like this. This is an extraordinary event. Years from now we are going to look back and shake our heads in disbelief at how undervalued gold stocks were in 2012.
You know it’s shiny, it’s rare and it’s the standard against which all good things are measured but how much do you really know about gold? Take the 2.0 edition of our interactive quiz to test your knowledge of gold history, geography and politics….
As long as there have been people, there’s been an attraction to gold. From pharaohs to hedge funds, gold has been an important tool of building and protecting wealth. Take a look at the interactive gold timeline below which carries you through gold’s enduring path as a universal symbol of wealth.
The Gold Tree Infographic below visualizes above-ground stock, sources and uses of gold and pictures the different forms of gold investments – ranging from physical gold in the form of bullion gold to securities not backed by gold.
The infographic below on vaulted gold explains what vaulted gold is and visualizes key facts relating to investments in gold that is stored on behalf of investors in high-security vaults.
Gold-producing countries are found on nearly all continents, and represent the gamut of economies from developed super-powers to small, emerging market countries. With gold’s spectacular rise in price and related demand, it’s worth your time to know a little bit about where all the gold comes from.
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain. Words: 863
In this article I would like to take a fresh look at physical gold, silver, platinum and copper regarding their respective versatility of use, durability, fungibility, store of value, liquidity and aesthetics with the hope that, for both old and new investors, my analysis will yield a new perspective on precious metals (including copper). Words: 878
If you own, or are contemplating owning…gold, you should read this article, and think carefully about the content of the 58 slides included with it – a presentation on the history of physical gold, its price drivers, what selected individuals think about it going forward, and what U.S. Federal Reserve Chairman Bernanke thinks of it.
Nick Laird has put together an Elliott Wave theory prediction using ‘The Golden Mean’ & ‘Fibonacci Sequences’ to arrive at future prices for gold…which he is hopeful will serve as ‘a roadmap which gold may take as it climbs to new highs’. See the chart below. Words: 625
Our Fractal Model suggests the wave for Gold in US Dollars will sweep up into the $3500 to $3600 area into the mid-year time-frame. The leading edge of that time-frame begins in May and extends out for a few months. A potential for Gold to spike to a $3900 extended fib level exists. Like all parabolic moves in Gold, the late stages create the biggest price movements. Personally, I would be happy with a huge Gold run up to the $3200 level. Words: 1400
According to my 2000 calculations, if interest rates and inflation stay constant over the next 2 years, we could expect to see (with 95.2% certainty) a parabolic peak price for gold of $4,380 per troy ounce by then! Let me explain what assumptions I made and the methods I undertook to arrive at that number and you can decide just how realistic it is. Words: 740
The current volatility in the precious metals market doesn’t necessarily indicate a change in secular direction. [In fact,] if today’s gold price was to rise by the same degree over the next 14 months [as it did from the beginning of 1979 into 1980, it would hit $4294/ozt. by Jan 2013! Let me explain.] Words: 420
Gold is operating on a smaller Contracting Fibonacci Spiral Cycle that is in synch with the larger Contracting Fibonacci Spiral the markets are in. Adding together the sum of parts… the price of gold will move up in price in 2013, 2016, 2018, 2019 and 2020, with each subsequent leg moving less in percentage terms than the prior move. Gold advanced 4 foldish from 1999 until 2008 ($252/ounce to $1046/ounce) suggesting that gold should top out below $4000/troy ounce by the end of January, 2013…[on its way] to $7,000 and $10,000 per troy ounce by 2020. [Let me explain.] Words: 834
Once this present correction in gold has been completed it should [undergo] the largest and strongest wave in the entire gold bull market…to around $4,500 with only two 13% corrections along the way. [Let me explain how I came to that conclusion.] Words: 19007.
There is a strong probability that the correction in the price of gold [down to $1,523] has been completed. The up move just starting should be…the longest and strongest portion of the bull market…at least a 200% gain… [to] a price over $4,500. The largest corrections on the way to this target, of which there should be two, should be in the 12% to 14% range. [Let me explain how I came to the above conclusions.] Words: 760
The correlation between the gold price from 1968 until 1979 and from early 2000 until today is an amazing 89.65%! More specifically, the correlation from 1975 until April 1979 and from January 2008 until today is an astonishing 97.83% suggesting that gold will reach an ultimate top of $5,000 per troy ounce before the bubble bursts. Words: 330