Best of the Week
Most Popular
1.UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - Nadeem_Walayat
2.UK General Election 2015 Seats Forecast - Who Will Win? - - Nadeem_Walayat
3.Gold Price Downtrend Looks Set to Continue - Clive_Maund
4.Commodity Prices Set To Plunge Below 2008 Lows - Austin_Galt
5.New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - GoldCore
6.Gold and Silver Stocks or General Stock Market Indices? - Rambus_Chartology
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.UK House Prices Trend 2015 and the May General Election - Nadeem_Walayat
9.12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - GoldCore
10.Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - Mike_Shedlock
Last 5 days
Gold Demand in UK, Europe and U.S. – Reuters Interview GoldCore - 2nd Mar 15
Watch the Skies... for Investor Profits - 2nd Mar 15
How Investors Can Identify the Best Small-Cap Stocks - 2nd Mar 15
Gold and Silver - What If the Precious Metal Stocks Bulls are Back - 2nd Mar 15
Students Getting a PhD in Subprime Debt - U.S. Debt Breaking Bad Part 3 - 2nd Mar 15
The Stock Market is in The Process of Major Top! - 2nd Mar 15
Stock Market Weakening Trend - 2nd Mar 15
Gold Price Glimmer of Hope - 1st Mar 15
Stock Markets Are Riding High on Thin Air - 1st Mar 15
Varoufakis vs. the Troika - Showdown in Athens - 1st Mar 15
Subprime Rising - U.S. Debt Breaking Bad Part 2 - 1st Mar 15
Gold CoT Improving, But ... - 1st Mar 15
UK General Election 2015 Seats Forecast - Who Will Win? - 28th Feb 15
UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - 28th Feb 15
Stocks Bull Market Continues - 28th Feb 15
U.S. Debt Breaking Bad - 28th Feb 15
NATO Frankenstein - When Centralization Scales Beyond Our Control - 28th Feb 15
Gold And Silver Insanity Prevails; Precious Metals Without Direction - 28th Feb 15
Fed Raising U.S. Interest Rates - Shovelin’ Schmitt Against the Tide - 28th Feb 15
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

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