Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Gold and Silver Stocks Held Back by Bearish Stock Markets

Commodities / Gold & Silver Stocks Jan 22, 2008 - 08:07 PM GMT

By: Greg_Silberman

Commodities Best Financial Markets Analysis ArticleJuniors will move once a stock market bounce gets underway: Whilst we spend most of our time talking about Gold in US Dollars we often fail to recognize that this is truly a global business.



Chart 1 - 2006 Gold Production courtesy Gold Links

The Gold Sheet Links show South Africa as the top Gold producer in 2006, USA second and Australia closely third. Put another way, nearly 90% of Global production is not denominated in US Dollars. That is 90% of the cost of mining is denominated in local currency -- energy and labor being the largest components -- and revenues to defray these expenses should be viewed in local currency as well.

Based on the following charts, margins in local currencies have been improving in the Gold mining business:


Chart 2 - Gold (top) is higher in Aussie Dollars and Oil costs (below) are lower


Chart 3 - Same with Gold and Oil in South African Rands


Chart 4 - And same again in Canadian Dollars

Not only do these positive economics affect current producers but also smaller near-term producers and explorers as well. The fact is, any company with access to Gold ounces in the ground becomes potentially more economically profitable.

So why have we seen a disproportionate upward revaluation in large producers relative to smaller producers and explorers? Will this trend continue and what is the catalyst that will make it stop?

We read with interest commentary that small Gold companies will not be able to raise funds because of the current credit crunch. This argument does not ring true with us since in our own experience banks are more than willing to lend to profitable businesses albeit at a higher cost.

The reason for the underperformance is quite simply an increase in perceived risk premium as a result of a bearish stock market environment.


Chart 5 - small cap GSS only took off 2 months after the HUI in 2001

In 2001 Golden Star Resources had a $25m market cap - not unlike many juniors today. We highlight GSS because it had a spectacular run up in the ensuing year [we own GSS]. However, whilst the large cap HUI index had been rallying strongly since November 2000, GSS didn't really got going until late January.
The reason was because the S&P (below in green) had been falling rapidly between November 2000 and January 2001. Once the S&P bounced in early 2001, albeit a nascent dead cat bounce, it provided enough impetus to send small cap miners higher for 3 months before a correction set in.

This is not unlike the present situation:


Chart 6 - small cap miner Gold Reserve (GRZ) has failed to rally with the HUI

Rightly or wrongly, when stocks in general are falling smaller cap miners will garner a higher risk premium along with the rest of the market and will underperform the HUI (red rectangle)

We believe a situation similar to 2000/2001 is unfolding today and once the stock market bounces off its oversold levels the juniors will catapult higher. All that's required is patience and nerves of steel!

More commentary and stock picks follow for subscribers…

By Greg Silberman CFA, CA(SA)
Profession: Portfolio Manager and Research Analyst
Company: Ritterband Investment Management LLC
e-Mail: greg@goldandoilstocks.com
Website: blog.goldandoilstocks.com

I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.

Please visit my website for a free trial to my newsletter http://blog.goldandoilstocks.com

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.  

Greg Silberman 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