Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19
Palladium, Darling of the PGEs, Shifting into High Gear - 13th April 19
MMT is a spectacularly Dem idea - 13th April 19
The 'Silver Lines' of Opportunity - 13th April 19
Gold Stocks Bull Market Breakout Potential - 13th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Argentina Rule Change Casts a Dark Shadow Over the Gold Mining Industry

Commodities / Gold & Silver Stocks Oct 28, 2011 - 05:54 AM GMT

By: Bob_Kirtley

Commodities

The re-elected President, Cristina Fernandez de Kirchner, wants export revenues from mining projects to be repatriated and converted to Argentine currency prior to their distribution.

This rule change by the Argentinian government renders this country less attractive than it use to be to inward investors. It also serves as a reminder as to the myriad of risks involved in any mining operation. This one comes under the heading of Geo-political risk, as the re-elected government seeks to stem the flow of capital out of the country. Having this cash repatriated also gives the government the opportunity, further down the line, to introduce capital controls which would result in the cash having to be re-invested in Argentina.


Whilst we watch developments here we stop to dwell on that much used word these days, 'contagion' and wonder if these external influences will have any influence on the neighboring states such as Mexico. This threat is not on Mexico’s horizon at the moment, but it does sit there as a possibility that we may have to face in the future.

This rule change has already had an effect on those who are prospecting and mining in Argentina such as Extorre Gold Mines Ltd, (AMEX:XG) a company based in Vancouver that explores for gold and silver in Argentina, it suffered plunged 25% drop to $7.00 yesterday.

This rule change may have short term benefits for Argentina, but over the long term it could be a game changer for them in that companies currently evaluating new projects in Argentina, will now be having second thoughts. Its not just this rule change, its realization that this government is willing to meddle with the status quo. The environment now has an air of uncertainty about it, the lack of a level playing field will deter many investors and encourage them to look and invest in what are perceived to be mining friendly jurisdictions.

Once again we have to question the wisdom of owning mining shares as the vehicle to gain exposure to both gold and silver.

Our strategy has been to acquire both physical gold and silver along with a selection of quality producers and a few well thought options trades. This strategy worked well for us in the early years of this bull market, however, over the last few years the stocks have struggled to keep pace with the metals as evidenced by the sluggish performance of the Gold Bugs Index, the HUI.



The chart above compares the price of Gold with the Gold Bugs Index, the *HUI, and it shows that the stocks were keeping pace with gold upto 2008, however, since then gold has outperformed the stocks. The reason that we invest in stocks is for the leverage they provide against the gold price, if that leverage no longer exists, then the wisdom of holding these stocks is called into question.

Its true that there will always be stocks that 'outperform' and if you are a very good stock picker then your returns may well do better than the physical metal, but in general terms this is not the case.

This lack of performance has been a cause for concern for us for some time now and maybe we getting close to a radical re-allocation of our funds, which would take into consideration the exclusion of the mining sector in total and the utilization of other vehicles in order to achieve our investment goals.

One of the indicators will be the future performance of the HUI, if it can rally back to the '600' level and break through it with some gusto then maybe we can commit funds to this sector with some confidence, until then we will keep our powder dry.

*(The AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index represents a portfolio of 15 major gold mining companies. The Index is designed to give investors significant exposure to near term movements in gold prices - by including companies that do not hedge their gold production beyond 1 1/2 years.)

Stay on your toes, volatility will be the order of the day and have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.
Bob Kirtley Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules