The Best Way To Understand Gold Investing
ď śI don't generally watch the major gold stocks In addition to everything stocks. troubling the juniors, majors actually have to run mines. Once a mine is in operation, the blue sky vanishes, and the stock's price becomes largely a function off costs versus the price off gold. ď śAnd with rare exceptions mines are very fi it resources; it' finite it's jjustt a question ti off time before the ore plays out, leaving you with little but an environmental liability.
ď śAs you know, I think new production of gold is trivial in determining its price, price compared to what the owners of the four billion ounces now above g ground decide to do. y few g gold ď śBut, for what it's worth, very mines are now making money (especially after allowing for amortization of capital), and d many are being b i forced f d to t close l down d because even their cash costs exceed their revenue by a wide margin. margin
Mines close (even temporarily) only as a final act of desperation desperation, because interest costs and substantial maintenance expenses p continue whether they're y producing or not. In addition, laying off labor is not only expensive, but risky—experienced workers may not be available when you need them back.
ď śWhen real interest rates are negative, bond prices tend to perform poorly. poorly This was the case in the 1970s. ď śHowever, when real interest rates are very high, such as was the case after 1980, government bond prices tend to rally.
ď śSo why is gold a good investment? And how are higher gold prices benefiting mining companies? ď śThe big news among name gold mining companies like Newmont and Barrick is uniformly positive. However, these are rotten businessesâ€”but excellent calls on gold, if we can pick the bottom for the stocks.
ď śRight now it still might amount to catching a falling safe. safe I like trying to pick bottoms, if only as an academic exercise;; it's mainly y a question q of determining the moment of maximum pessimism. ď śAnd this is probably it. Often you're better off waiting until an uptrend confirms fi th thatt it was, in i fact, f t a bottom. b tt
ď śOf course, what looks like the start of an uptrend may be nothing more than a "dead cat bounce." It's impossible to have certainty y in this business,, and the more I know about anything, the less certain I become. ď śWhen you hear some advisor claiming he will always get you in at the bottom and outt att th the top, t don't d 't b be naive i enough h to t pay attention.
Still, things are so gloomy both for the metal and its miners that it it's s worth paying attention to some troubled jjuniors,, with an eye y to using g them as leveraged calls on gold. Read more about charles nenner stock picks and jim chanos stock picks here: http://fundmanagernews.com/ p g
Published on Nov 20, 2012
I don't generally watch the major gold stocks. In addition to everything troubling the juniors, majors actually have to run mines. Once a mi...