GDX

[portart]

Ok, Do you think it's finally time for inflation to arrive? Have you seen a worse chart washout then GDX? Down 31% for the year. This sector is about as beat up as any you can find. I think now is the time to pile into it. Risk low from here and rewards high once inflation gets a foothold. I am buying into it as an inflation play. Anyone agree with this assessment?

[rtgyroscopic]

Ok, Do you think it's finally time for inflation to arrive? Have you seen a worse chart washout then GDX? Down 31% for the year. This sector is about as beat up as any you can find. I think now is the time to pile into it. Risk low from here and rewards high once inflation gets a foothold. I am buying into it as an inflation play. Anyone agree with this assessment?

What type of inflation are you expecting? Isn't inflation generally bad for equities? Looking at a chart of GDX (i've owned some in the past) it is back at the same levels it had been back in 06. And since March of 09, it had recovered well, but so have alot of other equities as well. Especially Apple(What a beautiful correction is taking place there now ,eh?)

I'm under the impression that the coming inflation will be coming from further money printing/dollar devaluation - in which case, would it not be better to simply invest in Gold itself?

I've been looking around for some highly discounted areas myself lately.. Do you have any opinion on Coal companies? Compared to the GDX; KOL and DJUSCL are down approximately 30 - 60% depending on the time frame you are charting. (I'm seeing 20% down on the GDX for some reason... )

With the Dow and S&P500 making new highs without any real significant improvement in unemployment and GDP numbers, another significant correction would probably bring the GDX down also.(I experienced that one last time.. Poor timing I suppose)

Just some random thoughts - Good luck

[AdamA]

I think HB reader makes a good point in this thread.

http://gyroscopicinvesting.com/forum/in ... pic=859.90

It is very ugly for the PM miners out there.  But like Wonk, I've maintained a small position (~10% to ~15% of my VP) in this sector for several years. On occasion, I've changed the composition slightly (between mutual funds, ETFs and individual stocks) depending on my sense of the most undervalued areas.  In my experience, the ETFs (like GDXJ) have actually performed the worst.  Will the sector eventually pay off?  I don't know.  But the sector has been out of favor for so long that it won't take much new investment interest to move prices dramatically.  I remember something very similar to this back in the late 1960s -- it wasn't so much an upward move in gold (although rising prices did provide some increased "visibility") that got things going -- but more a sudden realization by many successful conventional stock speculators (emboldened by recent gains in blue chip stocks and excessive stock market liquidity) that the whole sector had long been ignored and would be the next great opportunity.

I'm not betting my future on this happening again, but given the continuing liquidity injections of the world central banks we are seeing (regardless of the eventual triumph of inflation, deflation or prosperity) makes me think this may prove to be a pretty interesting speculation before too long.  I am encouraged about how little I've heard it touted in the media.

Just an observation.     
/i]

[portart]

All good points. However if you look at GDX and GLD you will see GDX is priced for gold to be at a much lower price. The miners are clearly not benefitting from the price of the metal. So do you believe gold is overvalued and due to come down or the miners are undervalued and at some point should rally hard.  My viewpoint is there is little risk in miners which are sold out. If gold goes down, I doubt they will follow much because it already has been sold out.  So, if inflation comes back which it will at some point, all commodities will rise and the miners should stave a significant hard rally. I think this Fall will be the time to be in that sector but I am getting in now.  I own a few oils and agricultural rtfs to round things off.

[portart]

http://www.marketwatch.com/story/inflat ... 2013-03-15

[rtgyroscopic]

All good points. However if you look at GDX and GLD you will see GDX is priced for gold to be at a much lower price. The miners are clearly not benefitting from the price of the metal. So do you believe gold is overvalued and due to come down or the miners are undervalued and at some point should rally hard.  My viewpoint is there is little risk in miners which are sold out. If gold goes down, I doubt they will follow much because it already has been sold out.  So, if inflation comes back which it will at some point, all commodities will rise and the miners should stave a significant hard rally. I think this Fall will be the time to be in that sector but I am getting in now.  I own a few oils and agricultural rtfs to round things off.

I  see what your saying, and i would concur, I see GDX climbing as opposed to GLD further correcting. I'd like to see how miners related to Gold prior to 2000, was there a strict correlation in equity price > gold price back then?  Is going back to 2005/6 a good sample of the Gold Price/Miner Price relationship? (Still a toddler here, learning as I go! Maybe I'll chart this later on)

We've had inflation over the years, and back in 08 with 3-4% (8% according to shadowstats) ,  GDX fell, 60%.  In 09 and 10 as the GDX was rising, i'm seeing lower inflation rates (http://inflationdata.com/inflation/Infl ... ation.aspx)  I would think coming inflation would crash the GDX some more, but  the liquidity in response to the overall market losing steam would drive it higher.

Perhaps you are piling in ahead of the event, and I'm just spewing the obvious... Lol.. Sorry about that!

[MachineGhost]

Ok, Do you think it's finally time for inflation to arrive? Have you seen a worse chart washout then GDX? Down 31% for the year. This sector is about as beat up as any you can find. I think now is the time to pile into it. Risk low from here and rewards high once inflation gets a foothold. I am buying into it as an inflation play. Anyone agree with this assessment?

Gold stocks have been going down because real rates have been rising, not inflation.  I don't know if this is due to expectations of an economic recovery or nominal yields are rising due to credit concerns.  Either way, gold stocks are a fantastic value play with P/E's under 10.  I gritted my teeth and bought a small exposure.

Its always possible the relationship between gold stocks and gold has changed akin to natural gas and crude oil a few years ago.  But I don't see the equivalent of horizontal drilling and fracking.

[AdamA]

However if you look at GDX and GLD you will see GDX is priced for gold to be at a much lower price.

I think it's more complicated than this.  There are a lot of factors that influence a mining companies ability to make a profit.  The price of the actual metal is just one of them.

For example, I saw a post a while back where someone mentioned that even things like futures contracts can make it tough for a mining company to make profit.  I'm not sure if it's true or not, but it's just an example of one thing that you don't immediately think of when thinking about the mining company vs the metal being mined.

[rtgyroscopic]

However if you look at GDX and GLD you will see GDX is priced for gold to be at a much lower price.

I think it's more complicated than this.  There are a lot of factors that influence a mining companies ability to make a profit.  The price of the actual metal is just one of them.

For example, I saw a post a while back where someone mentioned that even things like futures contracts can make it tough for a mining company to make profit.  I'm not sure if it's true or not, but it's just an example of one thing that you don't immediately think of when thinking about the mining company vs the metal being mined.

Curious to see a historical chart on Miner performance vs real interest rates over time...

I'll post if I get one going soon!

[AdamA]

Curious to see a historical chart on Miner performance vs real interest rates over time...

I'll post if I get one going soon!

I'd be curious to see.  It's fun to talk about the miners.

[Kshartle]

I bought a significant amount at $42 and doubled down at $36.95 along with some GDXJ.

Today's move upward per-market has me excited that we've finally seen a bottom. I sure hope we have.

[RuralEngineer]

The mining equipment industry is starting to experiment/invest in automation.  They say its targeted for areas like Northeastern Australia (I think that's Perth) that are so remote that they have to pay ungodly wages in order to get workers out there.  However, so much of what makes pit mining profitable is just large trucks running up and down a ramp. The drivers are going 9 to 16 miles and hour eating lunch as they do it.  It screams for automation.  Whether or not this will have a significant impact on profitibility I can't say, but I do expect to see a large percentage of mining equipment being automated in the next 10 years.  In addition, there is starting to be research into making the switch from diesel into dual fuel or straight natural gas to take advantage of the recent boom in gas production due to fraking.  Once this happens mining profits (as well as other industries that make the switch, I'm looking at you locomotive) are going to go through the roof because their fuel costs are going to go down significantly.

The cost benefits of natural gas over diesel are obscene.  I want to say 30% but it's been about 7 months since I saw the presentation so I might be off a bit.

[AgAuMoney]

The cost benefits of natural gas over diesel are obscene.  I want to say 30% but it's been about 7 months since I saw the presentation so I might be off a bit.

That's about right for LNG, under $3/g but less dense (energy) than diesel.  CNG can be even cheaper because significantly easier to dispense and store on a vehicle.  The biggest problem with CNG is range (even less dense than LNG) but the larger the vehicle the larger the tanks that can be outfitted without being awkward.

The problem with NG in any kind of remote operation is getting it there.  You really want to transport the most dense fuel possible.  Transporting LNG and letting it boil off for portable use as CNG can work.  But best case LNG is significantly less dense than diesel so hauling it in costs more.

In some mining operations they can go electric, even tethered.  Central power plant can be diesel, NG, even coal hauled in instead of dead-heading back after hauling out the mine production.  This originally started out only in tracked mines, but I've seen trucks dragging around huge power cables linking them back to the same power plant as the crusher, etc.

Automation should be doable.  If they can do it on a tractor in a field, a pit mine seems possible.  Probably needs some additional safeguards (like the out of lane warning and cruise control stop/start systems appearing in up level cars).

Edit:  If not tethered, usually hybrid, typically diesel-electric like a locomotive.

[MediumTex]

The rate at which ore quality is deteriorating is something that I'm not sure the market understands that well right now (or maybe it understands it really well and that's why the miners are not doing well).

The question isn't really what average ore quality today is.  The question should be at what rate will it deteriorate in quality over the next few decades.

The same analysis is part of the reason that I think oil companies haven't done better in the last 10 years as the price of the product they produce has almost tripled in price.

The production costs of most natural resource producers have risen for reasons unrelated to inflation.  The fact is that once the low hanging fruit off of any tree has been picked, getting to the rest of the fruit is going to be harder (and perhaps a lot less profitable).

[murphy_p_t]

Gold stocks have been going down because real rates have been rising, not inflation. 

I'm not aware of this, MG...can you provide some backup/explanation/evidence?

[MachineGhost]

I'm not aware of this, MG...can you provide some backup/explanation/evidence?

10 Year Yields > 10 Year Yields Six Months Ago.  Inflation < Inflation 12 Months Ago.

The stock market is rallying on expectations that the economy is recovering which is the same thing as saying real interest rates are rising, i.e. return on investment capital is becoming more attractive.

Gold stocks suck under increasing real rates and they only rise right before we go into a recession when real rates start declining.  The market doesn't believe that is happening.