STL, I’m curious. In college I interned at the chemical company my ex-gf’s father owned. One of the executives was telling me how another firm started producing a chemical product that produced X byproduct. X was what the company I worked for sold all over the world. He said that company didn’t care about the price they sold the byproduct at, so they flooded the global marketplace with cheap X and it screwed up the pricing for some time. Does this happen in these mines?
To a degree, yes. That’s basically how Silver Wheaton makes money. Their original concept was to go to gold miners and provide them upfront capital to get their mine going, and in return SLW would have a claim to all the silver that was produced by the mine as a byproduct. To this day, SLW’s cost per ounce of silver is just north of $4. Even at $18 today that’s not a bad business to be in.
Interesting. Where did you get the 1200 = marginal cost figure?
It’s already adjusted. That’s why the mining companies that have a more diversified production stream have lower costs. If mining gold is your primary objective, the metrics that guys like me care about are stated in gold equivalent terms.
If the spot price continues to decline we’ll see the purest gold mines go dark first.
He did his own DD. Look at his posts above
I CFA’d the shit out some financials.
^Respect
So how do you respond to the fact that gold has no measurable intrinsic value? And the answer can’t include “it’s money” lol
Careful with your language, dude! You aren’t allowed to use CFA as a verb, only as an adjective.
Well, if you take that away I’m not sure I can really respond. Am I allowed to call it a store of value? Look, it’s a currency. Everyone from central banks to citizens in far-off corners of the world buy and hold gold exactly because it is money. Gold has no intrinsic value exactly the same way the dollar has no intrinsic value. Gold has the added bonuses of being indilutable (I may have just coined that word), no central bank messing with it, and, very importantly, no counterparty risk.
This isn’t a reason to invest but just as a fun bonus; I highly recommend going out to a coin store and holding some gold in your hands. It feels good. It feels good to possess something that’s had measurable value for thousands of years. Buying it and building a stack one coin at a time appeals to collectors and nutcases alike! Seriously, it’s just plain fun.
I know it’s not for everyone. I’ve said it before here, but it’s really easy to guess who doesn’t like or, rather, can’t wrap their head around, gold - value investors. The more of a value tilt you have the less you find gold an attractive asset. That’s cool. Different strokes for different folks.
Some people can fap to it. But that’s banned on this forum now I think.
Some estimates on production cost for gold:
http://finance.yahoo.com/news/gold-crashes-production-cost-levels-061911104.html
Anyhow, I’ve said before that people who own gold should also own art. Serious question, how much does it matter if production of gold stops completely? There is not technically analyzable level (like LNG or oil) where we can predict price stabilization since gold is not a consumable. As has been stated many times, gold, like art, is worth whatever people are willing to pay. Of course, the market for gold is much deeper, but you also give up some liquidity premium for that market depth. And, it is equally unpredictable in my opinion.
Anyway, I think it is fine if people what to own these things, but I find it reprehensible for professional, traditional fund managers to take bets on it unless they are pure technicians. You’re a US equity manager. If gold is such a good idea that it warrants one of 30 spots in your portfolio then you suck at analyzing US equities.
What I don’t get is when it costs $1000 to mine gold, but gold trades at $1600 in the market. How are they making like 60% spread on raw material?
Yea I remember you mentioning the value investor thing before. Just was curious your response – I guess it’s just do you think the central bank or the market place is doing more harm to the valuations right now. I’m sure the market can behave in ways that poses risks to gold just like a central bank does for a currency, although the impact on gold may be more fickle since it does have *some* use.
it’s blended with drug money.
Because gold is not valued based on production cost. Gold is valued based on sentiment.
Also, the gold miners’ incentives are interesting. On one hand, they have an incentive to inflate production costs to put a floor on gold prices (if they think that’s how it works). On the other hand, they have an incentive to understate production costs because it increases their profitability. I tend to lean towards number one: inflate production costs and then pay yourself more. Given the rapid rising costs of labor for the miners (main reason production costs are rising, I’ve read), this seems at least plausible
hmm, gold at $1200 or noodles ipo at 34x ev/ebitda…
times are somewhat strange
Who said put gold in an equity portfolio. No one is arguing that. Should you be 100% equities, though? Only if that’s your mandate.
Nobody, just commenting on what I see in a lot of equity managers’ portfolios recently. A ton of managers owned gold miners because they thought they were trading at attractive valuations relative to the spot price of gold. So, you’re still owning gold as a proxy so you have to be able to forecast it…which, apparently, they couldn’t.
Gold miner profitability is not always driven by gold prices, since they hedge gold under certain circumstances. Take 2011 for instance. Gold prices rose by like 50%, but GDX was flat.
From what I gather, the gold miners tend to hedge (sell futures) when they think gold prices are high. When gold prices are low, they don’t want to hedge. If this is true, the gold miners will cap their profitability during bull markets, but will decline with gold in bull markets. They would make money if gold rebounds from low levels.
Wrong,
Ddepends on the asset and the company but I have seen alot of producers with costs at 400-500 an oz. There is no reason for gold not to be valued at slightly above those levels.