Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Gold Stocks: Tread Carefully

Commodities / Gold & Silver Stocks Mar 09, 2012 - 03:07 AM GMT

By: Bob_Kirtley

Commodities

Clarity of vision can be lost in the everyday hustle and bustle of market gyrations, news events, political posturing and the whirlwind of activity that is our daily labor. So, from time to time we need to recap by establishing just what it is that we are trying to attain. It is said that if we can state the problem clearly we are half way to the answer, so here we go:

Question: What is it that we are trying to achieve?


Answer: Exposure to the Gold Bull Market in order to generate a handsome return on our investments.

We are all aware that there are a number of vehicles available to us for this very purpose including the acquisition of physical gold, investment funds, gold mining companies, options and/or futures trades.

We have long held the view that holding physical gold in your very own hands is the first step and you then have the outright ownership of gold and you are not subject to the vagaries of the third party risk that comes with owning paper. If you are comfortable with owning paper and enjoy the ease at which you can move in and out the various funds that are available or the speed at which you can trade stocks then that's fine, as it is your aversion to risk that needs to be satisfied.

Now, if you are keeping up with play you will have noticed the chorus of support for the mining the sector lately. Some miners do indeed have excellent management teams in place with good track records along with interesting prospects in relatively safe mining jurisdictions. They should also be generating a fair amount cash with gold prices trading around the $1700.00/oz level. Lets face it, if they are not making money at these levels you would need to ask why you need to own them at all. Then there is the question of what use will be made of this cash pile, another acquisition, an increase in the exploration budget maybe, or even paying their loyal investors a dividend. Some miners are involved in all of these activities, although it has to be said that the dividends are not yet attractive enough to entice an investor looking for a handsome return for taking such a risk. To get the returns that we would like, we tend to look to those miners who are unhedged, that is as a miner who does not forward sell the gold for today’s gold price, that will be produced later on.

However, having tracked the progress of this sector of the market closely we are not impressed. If you take a quick look at the chart of the unhedged miners, the *HUI, you will note that it has been in consolidation mode for some time now and it did touch 500 in March 2009. Today it stands at 509.42, so unless you are an exceptional stock picker your money hasn't been working for you at all. We would like see a serious breakout above the 600 level before we would be comfortable with acquiring any more stock.

The Juniors are also being trumpeted as the place to be, however, many of the juniors do not have any ounces of gold in the ground as proven reserves, therefore why should they rise with gold prices? Junior explorers tend to rise on whether or not they have found gold, not in lock step with the gold price.

As a suggestion for those of us who do want to maximize their returns from this precious metals bull, then a few carefully thought out options trades could be a possible solution for us. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for those who have an aversion to risk. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your hard earned cash and its your call.

Footnotes:

You may be interested to see some of our past posts on this subject as we have wrestled with it and found it worrisome of late.

Are Gold Stocks worth the effort? Posted on Sunday, August 15, 2010

Are stocks the way to play this bull? Posted on Saturday, February 27, 2010

Gold: Are juniors the way to go?  Monday, July 7, 2008

*The HUI is 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.

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 200

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

© 2005-2016 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

Catching a Falling Financial Knife