Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15
Stock Market NYSE Hi-Lo Index Aggressive Sell Signal - 24th Mar 15
Palladium Commodity Price Forecast - 24th Mar 15
Bitcoin Price Gearing Up for a Fall - 24th Mar 15
Safety Deposit Boxes In UK Being Closed By ‏HSBC – Not Closing Gold Vaults - 24th Mar 15
Japan Short Term Gains And Long Term Disaster - 24th Mar 15
China's Fragile Evolution - 24th Mar 15
David Cameron Announces Resignation Even Before Being Re-elected, Handing Labour 6 Seats - 24th Mar 15
City of London's Ownership of American Colonies - 24th Mar 15
Stock Market Reversal May Have Begun - 24th Mar 15
Casey Gathers Top Gold Experts to Share Secrets for Making Money in Any Market - 24th Mar 15
Thoughts on The Current Crude Oil Market - 24th Mar 15
U.S. Economy Still on Life Support - What Your Governments Hiding From You... - 24th Mar 15
UK Election Forecast 2015 - Budget Bribes Fail, SNP Insurgency Catastrophe - Video - 24th Mar 15
Is Stock Market Minor Top Taking Hold? - 23rd Mar 15
Greece and EU Running Out of Time as Bank Runs Intensify - 23rd Mar 15
Stock Market Slightly Negative Expectations Following Last Week's Rally - 23rd Mar 15
This Rising Interest Rates Play Could Make You a Quick 55% - 23rd Mar 15
Platinum Commodity Price False Break Low - 23rd Mar 15
The Real Reason The American Dream is Unraveling - 23rd Mar 15
Election Forecast 2015 - Budget Bribes Fail to Impress Voters, Tory's Lose Seats in Opinion Polls - 23rd Mar 15
Silver Price Reliance During U.S. Dollar Rally - 23rd Mar 15
Gold Price Outlook Dramatic Improvement Following US Dollar Topping Action - 23rd Mar 15
Wall Street Doesn't Want You to Do This - 22nd Mar 15
The "Natural Interest Rate" Is Always Positive and Cannot Be Negative - 22nd Mar 15
Exploring The Gold Market: The Fed, The Charts. The COTS and GLD - 22nd Mar 15
Stocks Bull Market Continues - 22nd Mar 15
Gold And Silver - China's AIIB Spells U.s. Dollar Demise, Not Clear For Precious Metals - 22nd Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

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

© 2005-2015 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

Free Report - Financial Markets 2014