Gold Stocks, The Real StoryIt's obvious Nov 3rd is on investors mind's as it seems that it has added to the overall anxiety towards the markets movements. The current fundamentals irregardless off what the Fed does will not change for the corruption and manipulation is still allowed to run rampant throughout the economic systems. However whenever the true light behind these economic practices are revealed (foreclosure gate being the latest), the Fed has to show up to bail out the culprits at the expense of the public's future and they will continue to do so until the public wises up and demands true change. It's almost guaranteed that those money printing machines will be printing at full capacity on Nov 3rd.
It's also obvious that over the last few weeks the gold bubble people have come out in droves with their say as gold has taken some losses. They can go ahead and say what they want and I wouldn't be the least surprised to see these naysayers portfolios full of gold investments because it sure does not feel like a bubble, not even close! Looking at the chart below, it seems we might be at the beginning of the public stage, since the general media is slowly recognizing that gold is a newsworthy topic and for the majority I talk to, they basically know nothing about gold and it's stature during uncertain economic times,,, just that there's a lot of "we buy your gold" commercials on TV now.
Main Stages of a Bubble:
The bubble chart of Hofstra University's Jean-Paul Rodrigue
Eric Sprott - ….“The conventional wisdom is that gold is in a bubble. It isn’t so. At the just-concluded Casey’s Gold &Resource Summit, Eric Sprott showed a slide showing gold and gold mining shares as a % of global assets. As you can see in the chart,which I am republishing here, gold holdings are currently a fraction of what they’ve been historically.
We have a long way to go before gold can be considered fully valued,so sit tight and be right.”
A good article for the reasoning behind owning gold mining stocks:
Gold Stocks, The Real Story.
I have talked over and over again about the under-performance of gold stocks relative to the physical metal. Many gold investors are frustrated by this lack of performance in the mining shares and are questioning if these will ever really increase that much in value even if gold continues to rise. I have even read articles which state that the more gold goes up the more cash cost will increase, which will basically mean these companies won’t be experiencing any margin expansion. That’s probably one of the most ridiculous statements I have ever read. Below are the current margins at Newmont, Goldcorp, and Kinross.
Newmont
Goldcorp
Kinross
If cash cost were increasing at the same rate as gold, then how could margins be increasing so drastically? Like I said, it’s a ridiculous statement. Almost every mining company out there has experienced significant margin expansion over the past few years as gold continues to increase. Yes, cash cost do typically increase in a rising gold environment, but never to the same extent. But there could be several reasons for rising cash cost, and a lot of times companies have control over these cost. As gold keeps increasing in value, a lot of mines that weren’t that profitable at $800 are now very profitable at $1,300. These higher cost, lower grade mines will result in an overall cash cost increase for miners should they choose to bring these online, which a lot of them are.
Let’s talk a little bit now about this under-performance in gold stocks relative to the physical metal. You can see in the chart below that the two track each other almost 100% of the time. In other words if gold goes down so do gold stocks, if gold goes up then so do gold stocks. In this bull market we haven’t experienced a time when the two have traded inverse of one another. That really wouldn’t make sense for that to happen anyway. What has occurred though is in 2008 these gold stocks crashed and lost 70% of their value, some lost 90%. Gold lost a significant amount of value as well, but not to the same extent so it didn’t need to increase as much to reach the old highs. For the past 2years the ^HUI has been trying to dig itself out of the hole that it was in.
Another point I would like to make is this could be the first real bull market in gold stocks. What do I mean by that? Well, we have had 2gold bull markets over the past 100 years, this is number 3. But the previous two had significant limitations. The first one that occurred during the Depression was limited because the US was still on a gold standard. The second one started right after the US went completely off the gold standard in 1971. Again though, there were several limitations of the second bull market as well. Let’s face it, we live in a different time, in terms of technology. Back in the 1970's you didn’t have the internet, countries weren’t connected to the entire world like they are today. You were limited in scope and knowledge regarding gold companies.That’s not the case today. Now you can research every publicly traded gold company, more importantly, you can buy these even if they trade on different exchanges. You couldn’t do that in the 1970's. Technology will allow this to be the first true bull market in gold stocks.
Don’t get me wrong, the gold bubble that occurred back then produced huge gains. Take a look at the examples below. I’m not implying that gold stocks will go even higher this time, rather the scope of the current bull will be much greater than the previous one.
1975 1980
| Lion Mines |
.07 |
$380 |
| Bankeno |
$1.25 |
$430 |
| Wharf Resources |
.40 |
$560 |
| Steep Rock |
.93 |
$440 |
| Mineral Resources |
.60 |
$415 |
| Azure Resources |
.05 |
$109 |
The current bull market in gold is more of a global event. Almost every country is trying to debase their currency. The end result will be people rushing into gold and gold stocks to protect themselves from inflation. Investors in this sector seem to forget that this isn’t just about the US.
I also want to talk about earnings. Let’s look at the two biggest gold producers, Barrick and Newmont. In 2009 Barrick earned $2 a share, for 2010 the estimate is $3.13. Newmont earned $2.79 in 2009, for 2010 analyst expect $3.72. That’s a 56% increase for Barrick and a 34% increase for Newmont. And actually, those estimated 2010 earnings aren’t factoring in the recent rise in the price of gold. If gold averages at least $1,400 next year, then both companies would show another significant increase in earnings in 2011. These two also pay out dividends, and I’m sure those will be raised as well. In other words,it’s going to be hard for investors to continue to ignore the sector when you have companies drastically increasing earnings and boosting their dividend yields. The gold sector will be the most profitable of all places to invest.
There will be a bubble in gold stocks, as long as gold continues to increase in value. Like I have said before, the reason gold stocks will enter a mania stage is because the sheep are predictable. Have you ever asked yourself why bull markets always end in bubbles? It’s because the sheep are always piling in at the end, which causes things to go vertical. And the reason they start buying is because they see the gains being produced and they want in on the action. It’s a constant chase for them. It will be no different this time. All we need is for gold to keep going up, the rest will take care of itself.
The bottom line is this, there is a lot of misguided information out there regarding gold stocks. Anybody that says increases in the price of gold don’t really benefit miners is not looking at the facts. Gold companies are experiencing incredible margins right now, and they only get better the more gold goes up. Earnings are increasing substantially because of this margin expansion, and this will result in higher dividend yields as well. The gold sector will become the most profitable sector to invest.
Gold stocks will eventually start to outperform physical gold, but it won’t happen until the sheep get more interested. And that won’t happen until we see bigger gains in gold stocks. Those gains will come as long as gold continues to rise. Unfortunately, gold stocks crashed hard back in 2008, more so that gold did. Since that time these stocks have been trying to dig themselves out of the hole they were in. A few weeks ago they successfully did that, it took them 2 1/2 years though.
This will be the first true bull market in gold stocks as a result of technology and the fact that this time it’s a global event. That is why the current bull market will be much larger than previous ones.Investors can now research every publicly trade gold stock out there,and more importantly, they have ways to purchase these now even if they trade on different exchanges.
Source:https://goldstocksdaily.com/2010/10/24/gold-stocks-the-real-story/