Page 1

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 businesses—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:  p g

The Best Way To Understand Gold Investing  

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...

Read more
Read more
Similar to
Popular now
Just for you