A Case for buy Gold Stocks in 2014 or buying into an historic bottom

[portart]

http://www.kitco.com/ind/Conner/2013-12 ... ities.html

[dualstow]

What I learned from the article:

I'll say it again; picking bear market bottoms isn't easy.

[Latterly]

Here's the inflation-adjusted price of gold:



Still look like a "historic bottom"?

[dualstow]

There's just no telling where gold is going. That's the whole point of the pp, right? As the chart above shows, it doesn't have to look like a bottom. Even if it were a bottom, couldn't it stay at 1200 for twenty years? We just.don't.know.

[Kshartle]

Dustalow is that chart based on the CPI?

For instance......I think I saw according to the FED's numbers M2 is now 11 trillion and was only 1 trillion in 1975. Different inflation measures will show very different things.

My point is it's really tough to nail the concept of "inflation-adjusted" because that word has a lot of different meanings. If this is based on the CPI....I think most have agreed here that's not a good measure of inflation.

The thing about the gold stocks is they are down way, way more than gold.

GLD was at this same price in 2010 and GDX was at $53, now it's $21. That's 150% higher even with gold at $1200 an ounce roughly.

Of course no one knows for sure what will happen but when an entire sector is down 70%.......at some point the risk/reward gets very attractive.

[Latterly]

Yes, it was based on the CPI. Here's the non-inflation-adjusted chart:



If we want to talk about what would be a "bottom", we must consider the possibility that 2000 to 2011 was a bubble, and that a more reasonable price would be closer to $400.

[dualstow]

Ooh $400 would be a godsend. I know that's a penny-stock mindset to think in shares and not valuations, but I would love to fill my coffers with kruggerands at that price. (Each coin is a "share"). Then, even if gold lingered for a few decades I'd probably live to see it recover. All the while I'd be paying no fees, having paid markup up front for the coins.

I suppose one of these days I'll have to put money intended for gold back into IAU, etc. but I think it makes sense to get more coins first.

[Kshartle]

Yes, it was based on the CPI. Here's the non-inflation-adjusted chart:

If we want to talk about what would be a "bottom", we must consider the possibility that 2000 to 2011 was a bubble, and that a more reasonable price would be closer to $400.

I don't think the CPI would be a good way to "inflation adjust" anything since the CPI is not an objective measure of the effects of inflation. Since it's been changed many times over the years it isn't objective at all, it's subjective based on however the government chooses to measure it at that given time. An objective measure would be a basket of goods that was held constant or the overall money supply. You might argue for whatever reason this is not a good measure but at least it's objective.

As to the reasonableness of a $400 price......this disregards the reasons for gold's historical place as a long-term store of value. It has been a long-term store of value for thousands of years for very good reasons. Since 1913 the USD has definitely not been one. USD is a short-term store of value. Without interest payments an investment in USD would be long-term financial suicide. As long as the money supply is expanding faster than the supply of gold the long-term direction of gold should rise in dollar terms, albeit with a lot of volatility.

I don't think we can discount the rising wealth around the world and the need/desire for people to protect it in a liquid and long-term way. As the rest of the world has been catching up to the wealth previously enjoyed by Americans, it only makes sense that many of them will seek to store that in gold, thus bidding gold away from Americans are requiring them to pay an ever-higher USD price in gold.

I think it's pretty safe to assume gold hit it's inflation adjusted high in early 1980.

My question is, what was the price of a two-bedroom apartment, a 3 bedroom single family home, a dozen eggs, a loaf of bread, an average 4-door sedan, a gallon of gas, a year of college at a public university, a routine physical and anything else you can think of that can be objectively measured that makes up the majority of people's spending.

I suspect those prices have more than tripled, implying that the inflation adjusted high in 2011 was well above $2,500 and the current price of $1,200 is significantly less than 50% of that high. Silver isn't even close.

As far as bubbles go......I was too young to remember 1980. Do any older members remember the public perception of gold in 1980? Was that anything like what we saw in 2011? I don't think main street really bought into this rally, at least not in a big way like the dot-com/tech/housing bubbles. I think we'll have a gold bubble eventually, but I think the 2008-2001 run up looks like wave 2 and not wave three, manic public-buying which typifies bubbles.

We'll see of course. Sorry for being long-winded guys. 

[portart]

I was referring to gold stocks, not gold, at a bottom. Gold stocks are priced for much lower gold then the current price.

[dualstow]

I was referring to gold stocks, not gold, at a bottom. Gold stocks are priced for much lower gold then the current price.

Right, but as long as the price of gold stays low gold stocks can't skyrocket, can they? Perhaps some miners will do better than others, but overall, doesn't gold have to be somewhat beloved again?

[Kshartle]

I was referring to gold stocks, not gold, at a bottom. Gold stocks are priced for much lower gold then the current price.

Right, but as long as the price of gold stays low gold stocks can't skyrocket, can they? Perhaps some miners will do better than others, but overall, doesn't gold have to be somewhat beloved again?

I don't think so. That's the point I was trying to make with my first post. At $1,200 an ounce back in 2010 the gold miners index was 150% higher than today. Now gold was getting love back then so it's probably unrealistic to expect such a huge rise for the miners......but a 75% bounce here would make sense to me even if gold didn't move much. The miners appear that oversold.

I expect a good year for gold though and own more gold stocks than anything else so I might be too biased to comment objectively.

[portart]

My take.  I am buying gold shares hand over fist for my VP. The risks are there of course but where do you think the risks are higher, a market at all time highs that is long in tooth or an 80% sold out market sitting on its ass for a long time? Even today with a falling dollar, the stocks (and gold) is higher. That is a super bullish signal to me. It's a new year and many big boy investors are thinking this segment of the market will be higher at the end of the year then last year. If that is believed, the buying will come in early meaning now..

[dualstow]

Very interesting, these two posts above.

I won't be piling into the miners as any cash I have on hand will probably go to the pp if it gets invested at all.
Just the same, I hold some beaten down ABX and NEM, both of which I thought I was buying at a low, and would love to see them recover someday. Today was a good day for them. They just need fifty more days like this.

[portart]

So far my timing is good. If this rally can continue then hold as a higher low, we could zoom hard. Futures for gold up again tonight. All other markets are at nosebleed highs. I love all predictions of lower gold which is a positive indicator.

[Kshartle]

So far my timing is good. If this rally can continue then hold as a higher low, we could zoom hard. Futures for gold up again tonight. All other markets are at nosebleed highs. I love all predictions of lower gold which is a positive indicator.

+1

I even own some GDXJ and GLDX with all that GDX so I am hoping for about 50 days like this this year.

I think GDXJ made a 50% up move back in August. Getting back up there from the latest bottom would be over 80% from the lows so bring it.

The all-time high is 400% away. I think it will take gold to break 2k for that to happen again. That's gonna require something big to convert all the momentum players that got burned.

[frommi]

When investing in gold stocks, you should try to understand the businesses of gold miners. Its totally possible that a lot of gold miners go bankrupt, because gold prices are not a factor of supply out of earth and demand. Only 2% of gold is mined yearly. So its not a commodity like oil or wood. In the last years the miners have opened new mines that were only profitable because of the high gold prices. But these mines are not profitable anymore. And that won`t change over night, except when the gold prices skyrocket. When you want to invest in gold miners you should pick the lowest of the lowcost miners. But for that you have to analyse the businesses. The problem with miners is that their costs go up much faster than their profits and thats the reason these are very bad businesses for the long term. You can get lucky when you time your entry and exit very good, but there are much easier ways to earn money in the market. Get rich quick only works for the lucky ones.

[portart]

I have my position in GDX and GDXJ. Now adding to it on pullbacks.

[dualstow]

For the purposes of this article & thread, When you guys talk about "gold stocks", you're really talking about gold mining stocks every time. Is that right? I always think of IAU, GLD, etc even if they are technically funds and not stocks. (But so is mining ticker GDX a fund).

Can't we say:
physical gold (coins)
gold stocks (GLD)
gold mining stocks (GDX, NEM..)? Or, "the miners"?

[rickb]

For the purposes of this article & thread, When you guys talk about "gold stocks", you're really talking about gold mining stocks every time. Is that right? I always think of IAU, GLD, etc even if they are technically funds and not stocks. (But so is mining ticker GDX a fund).

Can't we say:
physical gold (coins)
gold stocks (GLD)
gold mining stocks (GDX, NEM..)? Or, "the miners"?

Um, no.

I think "gold stocks" pretty much universally refers to gold mining stocks (and other related companies like RGLD).  GLD/IAU/SGOL are "gold bullion ETFs", also commonly referred to as "gold ETFs".  GDX and GDXJ are gold stock ETFs (they hold a collection of gold mining stocks, not gold itself).  GTU and PHYS are not exactly ETFs (they're closed end funds), but they are definitely not "gold stocks".  Perhaps "bullion funds" might collectively refer to any of GLD, IAU, SGOL, GTU, or PHYS - but as far as I know this is not a common term.

So, I think the common vernacular (and what we should use here) is:

physical gold (coins or bars)
gold ETFs (GLD,IAU,SGOL)
gold closed end funds (GTU, PHYS)
gold stocks (gold mining companies, e.g. NEM etc)
gold stock ETFs (GDX, GDXJ)

Loosely, "gold stocks" could refer to GDX and GDXJ as well as individual companies, and "gold ETFs" could refer to the closed end funds (GTU and PHYS) as well as GLD, IAU, and SGOL.

[dualstow]

ok, got it. For what it's worth, the editors of Investopedia would not agree with you that it's universal - http://www.investopedia.com/search/defa ... d%20stocks
but I can work with the above.

[portart]

So far so good, all investments in gold stocks are up. Maybe they finish positive this year.

[Kshartle]

So far so good, all investments in gold stocks are up. Maybe they finish positive this year.

Juniors and explorers moving up strongly. Imagine if gold could actually hit a strong bid. A quick hundred dollar move up in gold might push this sector up 20-25%. It would be nice to get that.

[Kshartle]

Gold down today and miners up.

This happend probably once or twice last year and I count at least 3-4 times so far this year.

Nothing is certain, but this has to be a very bullish sign that the bottom is in for the miners.

[portart]

Don't kid yourself. The big boys love indexes that are down 80%. Although no one is right 100% of the time, it's a far better bet being in gold stock etfs then in the general market which at nosebleed highs are more vulnerable now then gold stocks priced at "I give up, it sucks and it's going nowhere" prices.  Big money is buying in early and a little at a time to prevent profit taking that would occur in a sudden hard jump higher. Even if they do nothing, I love owning a low risk VP where being right means huge gains and being wrong is already for the most part priced in. I have now 10% in gold stocks all at a profit bought in at year end.

[Kshartle]

I have now 10% in gold stocks all at a profit bought in at year end.

Not bad! I've only bought GDX and GDXJ for the last 7-8 months.......

I've bought at lower levels than currently but still ay down on them overall. Hoping for a massive windfall this year or next.